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Please
note that this Transcript was furnished from the Rife Canada
Group.
It
also is not complete and if somebody runs across the remaining
portion of it and would like to send it to us, please do so we
may complete it.
Comperet,
Beam Ray
Monday,
June 12th, 1939.
Sapiro, Hoyland
Judge
Edward Kelly presiding:
Superior
Court 6.
Comperet,
attorney for Beam Bay opens proceedings, by raising objections
to the effect that case should be thrown out of court for the
following reasons. Only a stock holder can bring such action,
but Hoyland has declared that the issuance of all stock
including his own is void, therefore he can not be a stock
holder. Also, the suit is brought by Hoyland on his own. We have
the affidavits of the other stockholders objecting to the
action. Judge Kelly denied the motion. Sapiro set forth
Hoyland’s demands saying that Hoyland asks that present
holders of office as directors be removed. That a new board of
directors be appointed and that it be established by court order
that the present directors can not at any future time resume
office. He asked also for full accounting of all corporate
business. Comperet claims that only an officer of the
corporation can demand that. Hoyland claims that the stock was
issued and/or transferred fraudulently. Sapiro than declared
that the status of the Plaintiff is still that of a stockholder,
that therefore he is within his rights in bringing suit before
the court. Judge Kelly then said that he considered Hoyland a
stockholder, because the stock could not be declared void until
a court of law so decreed. Comperet’s motion was therefore
denied again by Judge Kelly. Comperet tried to prove that the
case was not sound because a stockholder could bring an action
on behalf of a corporation only when the corporation could do so
or when it could be proven that the corporation had suffered
harm.*** He cited several cases to this effect and put forth
that the Beam Bay Corporation suffered no harm since the
exchange or transfer of stock was merely a private transaction.
Kelly denied this motion and called a recess.
Case resumed.
Sapiro set forth that 6 claims were based on laws existing
before 1931. As the law now stands any stockholder can sue any
corporation. He defined the action as a move to remove the
officers because all failed to protect the corporation from
fraud. Sapiro claimed that Hutchinson withheld from the
corporate money collected on the sale of stock and that Hoyland
asked the board of directors to protect this, that they refused
and he therefore brought the suit himself.
Judge Kelly ordered the case to proceed.
Sapiro then summarized the complaints. (referred to as
complaints but regarded as a series of statements).
1)
Hoyland holds ten percent of the stock.
2)
Corporation was formed in San Diego and all directors
reside in that city. (there are five directors at present).
3)
Lists former names of corporation, it is now known as
Beam Ray.
4)
That the number of directors was to be raised to nine.
5)
That after arranging that all stock was to be issued to
Cullen, Hutchinson, and Olmstead, these three directors then
added new directors to the board.
6)
That the corporation took over Rife machine and started
to manufacture and distribute same.
7)
That in the transfer of stock Hutchinson insisted that
the money went to the corporation but Plaintiff declares that
Hutchinson kept $500.00 of the money.
8)
On August 12, 1938, Hutchinson first brought before a
meeting of the board the transactions
complaining of…(missing transcript)
9)
Hutchinson presented to the corporation an illegal
suggestion regarding a Dr. Yale.
10)
Hoyland gave notice to the corporation that the contracts
regarding transfer of stock were all wrong.
11)
The affairs of the corporation have become muddled and
confused. (missing transcript)
12)
Plaintiff has brought action in his own behalf and the
interests of the corporation.
13)
General accusation against all directors. He asks that
they all be removed from office.
Comperet
then took the floor and pointed out that Sapiro was in error
when he said that Plantiff did not know what was going on in the
corporation. That Hoyland attended all meetings, read the
minutes, and was familiar with all the activities of all the
directors. Sapiro called Edwards to the stand. It was
established that Edwards was secretary to the Beam Ray
Corporation, is a member of the board of directors, and holds
fifty shares of stock. He is also custodian of the records of
the company.
Kelly called a noon recess.
Case resumed. Edwards on stand again. Ledgers were introduced
and accepted as exhibits. Edwards read the minutes of the
meeting of the directors held on June 1st, 1937.
Ditto June 25. Sapiro aimed to show by the introduction of these
minutes that there was no record of certain activities of the
three directors Hutchinson, Cullen and Olmstead. Edwards
explains his check for $500.00 made out in Hutchinson’s favor.
He was thoroughly sold on what the Rife Machine would do and
wanted to buy stock from Hutchinson, but explained that the
stock was impounded, but that could give him fifty shares if
Edwards would give him five hundred dollars. Edwards agreed and
made the check out to Hutchinson under the distinct impression
that the money would go to the corporation. He said that he got
a receipt from Hutchinson which he later returned to Hutchinson.
He does not know were the receipt is now. Judge Kelly asked
Edwards if he did not think it queer that Hutchinson would give
him his own stock in exchange for money that was to go into the
corporation for operating expenses. Edwards said no, he did not
think it queer at the time. Sapiro asked when the money Edwards
gave to Hutchinson was paid over to the corporation. Comperet
objected and was sustained. (for once!!!). Sapiro then handed
the ledgers to Edwards and asked him to find a record of when
this money was paid to the corporation. Edwards could find no
record, but said that these particular records were not the
original records. He then produced the old books, and showed
that on July 31, Hutchinson turned in a note for $500.00 payable
to the corporation. Sapiro asked if this note was not over due.
Comperet objected and was sustained. It was brought out here
through direct questioning that Hutchinson does not have the
receipt he got from Edwards and does not know where it is.
Sapiro then questioned Edwards regarding a meeting at which
Williams said that the note was non-negotiable. Edwards did not
remember. He said that Hutchinson paid back the corporation
about seventy-five dollars on one occasion, and fifty dollars
which Hutchinson had him apply on the notes about six months
back. Nothing has been paid since the note became mature. A
notice to the corporation signed by Hoyland dated January 13,
1939, was identified by Edwards in which Hoyland demanded
collection on the note by the corporation. Edwards said that the
board of directors met and went over the Hoyland demand and
immediately took steps to get legal advice but that nothing was
done to collect the money from Hutchinson. Edwards said that
only one machine had been sold since. That one was sold to Dr.
Dishy, a chiropractor. Edwards said that Henderson was
discharged from the Court resumed.
Edwards was excused and Reynolds was called to the stand.
Reynolds is a director of the Beam Ray Corporation, and has
stock in it. He testified that early in May of 1938 he talked to
Hutchinson about acquiring stock in the Beam Ray Company, and
Hutchinson said that the stock was impounded and could not be
sold, but that he could give some of the stock to Reynolds.
Record of the transaction was admitted as exhibit 12. Reynolds
told of giving check for the stock that was to be released from
poundage and of getting a receipt at the time. Later this
receipt was taken by Mr. Cullen who gave him a note for $500.00
against Beam Ray Corporation in place of the receipt. This
transaction was made under the former name of the corporation,
that is: United Polytechnique Institute. Reynolds could not
remember when he last attended the meeting of the board of
directors of the Beam Ray Corporation. He said that the Beam Ray
Corporation was just barely able to keep its head above water.
Comperet cross-examined Reynolds and asked Reynolds about a
demand made upon Hutchinson for the return of the $500.00 and
showed him a document to that effect. Reynolds could not
remember who suggested drawing up this document or anything else
about it (part of transcript missing).
She said that she understood from Hutchinson that he could give
her the stock and that it would later be released and that the
$500.00 was in payment for this stock. She told of complaining
about not receiving this stock after seven months went by. She
said that when she gave the money to Hutchinson he told here
that it would be impounded until the corporate commissioner
released the stock. She expected Fickerson to hold the money
until the transaction could be completed. When she found that
the stock was not forthcoming she felt sure that she would get
her money back.
Court
was adjourned.
Tuesday June 13, 1939. 10 A.M. Miss Ernstein on the stand.
Sapiro showed her a check for $2000.00 made over to Hutchinson
and signed by her father, and she identified it. She testified
that she was told she would get fifty shares of stock eventually
for her $500.00. She said the receipt she got for $2500.00
represented her own and her father’s investment was signed by
Henderson and Hutchinson, but she did not remember definitely
how many shares were named. Judge Kelly questioned her. And she
said that she thought that the receipt said that the money they
paid was to be impounded and that they would receive two hundred
and fifty shares of stock. Sapiro asked her when she first found
out that she made a loan to the corporation. She said that she
found out that she could not get the stock until she gave
Hutchinson her receipt. She gave it to his and he gave her a
note on the corporation. Her father also gave a note. Nothing
has been paid to either. Comperet questioned her and she
testified that Henderson told her that Beam Ray Corporation
could use some money, that she…(missing transcript).
Henderson said that his wife owns 500 shares of stock for which
she received a receipt and for which she paid no money. The
stock came from Hutchinson but the receipt was signed by
Fickerson. Henderson said that he put $900.00 into a former
business venture of Hutchinson’s. Henderson said that he saw
the receipt given to the Ernsteins and that he might have read
it, but that he did not remember what it said. He testified that
he knew nothing whatever about the books of the Beam Ray
Corporation. He showed a receipt from Hutchinson for $900.00
cash he had given Hutchinson on a former deal.
Sapiro asked if Mrs. Henderson had helped to put over the
English deal for Beam Ray Corporation Henderson replied with the
following story: “His wife had been suffering from a malignant
disease. They visited the Rife lab, and she saw the Rife machine
and when the English group were here they entertained them at
their home. Mrs. Henderson is still take treatments, one a week.
Henderson said he left the organization in July because there
was too much confusion in the company. He called the courts
attention to the fat that he has never wanted any stock nor does
he want any part of the English deal. Comperet asked him about
the discussions of the corporation; Henderson said these
arguments were sometimes between Rife and Hoyland, or Henderson
and Hutchinson, or Hutchinson and Couche, Cullen etc….
Henderson said that they rowed about a large number of subjects.
Henderson said that Hoyland was technical director for the Beam
Ray Corp, that he serviced the machines and was in charge of
designing and manufacturing. Comperet asked him where the basic
designs came from. And Henderson said that those were
Hoyland’s also. Comperet asked Henderson what is the substance
of the conversation between Hutchinson and the Ernsteins.
Henderson said he remembered it quite clearly. That Hutchinson
said the stock was a gift but did not recall his saying that the
money was impounded.
Recess.
Noon.
Monday, August 14, 1939. Arguments.
Judge Kelly:
“I would like counsel to pay attention to the evidence
that has been produced, and I would also like to be reminded of
the facts of the case.”
(This is a summing up by M.B. of this particular part.) Sapiro
brought out he fact that Hutchinson dominated the corporation,
that he spoke so frequently about how often he did this and
that, it was obviously a Hutchinson promotion from the start.
Olmstead’s testimony bore this out and showed also that
Olmstead paid no attention to the affairs of the corporation.
Sapiro then made an issue of the meetings of June 1st,
1937 when Cullen offered to sell our his course from practically
all the stock of the corporation. After having done this they
elected their new director. If the meetings were held
improperly, as they seem to have been, everything that took
place was invalid. He referred to the fact that the markings in
the book implied that the order of the pages was fixed
deliberately to make it look as if the meetings took place
properly.
Sapiro:
“They tried to prove that the meetings took place in proper
order by putting Olmstead on the stand, and they hope in this
way to validate the applications for the issuance of the stock.
No word was found of the meeting having been split, but the
typewritten changes that occur on the last page.”
Sapiro referred to Olmstead’s testimony pointing out
that when Sapiro showed his affidavit saying that he had
carefully read the minutes and that they were correct, he then
denied that the minutes were correct. He changed his statement
under oath because he saw that his stock was invalidated.
Fickerson’s testimony disagreed with Olmstead in many
respects. Hutchinson then said on the stand that he had examined
the minutes and that they were correct.
Sapiro:
“No, he said that in his affidavit, but he changed his
statement on the stand – just as Olmstead did. At the Fresno
meeting the defendants say that they approved all the minutes as
they were read at that meeting. They therefore know that the
meetings came in a different order than that showing on the
minutes. This it would seem should discredit the witnesses.”
Sapiro:
“Hutchinson’s very strange manipulations of stock in regard
to the Nevada corporation and the A.S.C. courses should be
considered, and that Hutchinson had taken most of the stock for
himself and had sold it to various people, even though the
corporation had abandoned the idea of carrying on the courses.
Later, the corporation set about to get control of the Rife Ray
machine. Hutchinson fixed himself firmly in contract with
Hoyland and Rife and with the British, and used his defunct
corporation in the negotiations. Hutchinson then set about to
get money. He had been borrowing from people, to use his own
phrase, and as the book showed. He got in touch with Edwards,
Reynolds and the Ernsteins and sold them some stock using all
his tricks as a promoter. (His own testimony proved that all his
work was in the capacity of a promoter), and knowing what is in
the law he told Viola Ernstein (and I believe she was completely
innocent as was her father) that he could not sell her the stock
but that he could give it to her. She gave him $500.00 and he
gave her a receipt, but when your Honor quizzed him about it he
quoted it perfectly, almost word for word. This action of
Hutchinson of taking the money before the stock was released
from the corporation was criminal. Reynolds gave him a check
which says, “received for 500 shares of stock,
U.P.I…etc.”. and was signed by Hutchinson. Hutchinson
disregarded the law in reference to these three people. It is my
contention that this money should be returned to them by
Hutchinson. I call your attention to the fact that no mention is
ever made at the meetings that followed that Hutchinson got this
money from these people. Later at the meeting of August 12 these
transactions are referred to as loans. Then Hutchinson asked for
receipts saying that they could not receive the stock until they
surrendered them. In return for the receipts thus surrendered he
gave them notes, they all thought they were buying stocks.
Hutchinson’s action was a criminal violation of the Corporate
Securities Act, which was designed to protect the innocent
victims of such transactions. I think the very slickness of the
manner in which he did all these manipulations proved him a
criminal, and that he knew what he was doing. Hutchinson held
out the money he got from Edwards in May, and in August he gave
a note for it. We say that the corporation had not right to
issue these notes to these people to protect Hutchinson who had
done a crooked piece of work. Edwards knows the law. He knew
about the things that Hutchinson was trying to do, and I think
he may have been in pari delicto with Hutchinson. Reynolds is
naïve. I think he was in good faith. I think that only Edwards
may have been a guilty party to the transactions with Hutchinson
showing that he collected money here and there in exchange for
these gifts of stock. Beth Willman was getting a salary for her
services to the corporation, but she gets over seven hundred
shares of this stock. The records do not show that Ernstein,
Reynolds and Edwards paid for their shares. It says merely that
they received the stock for services rendered to the
corporation. The money changed hands in every case, long before
the stock moved into the corporation. When you asked them why
services they had rendered, none could recall any. It is quite
obvious that all of this was one complete fraud. That Hutchinson
sold stock in these corporations, and received a lot of money,
some of which was put into the corporation, but most of which
Hutchinson kept. They all failed to tell the truth about the
transaction which nullified the application. The Plaintiff did
not know that all this was criminal action until I so advised
him. We alleged that the books are very irregular, particularly
as regards the Nevada corporation, and the A.R.S. assets. The
complaint tells that Hoyland served notice on the board of
directors, that all of the transactions, stock issuances,
etc…were illegal, and that the contracts were improper.
Nothing was done. Hoyland told them the British, and the British
contracts say nothing about frequencies. We showed in court
Hoyland’s records to the British telling of what he had sent
to the British, but they were not paying the money they owed.
They kept complaining, it was a stall to delay the payments. At
the meeting in New York of Hoyland, Hutchinson, and the British,
two new agreements were made with no reference to the
frequencies, but with all items concerning the financial side of
the question. Quite obviously the British were satisfied, since
they paid what was in arrears and put up ten thousand dollars
more. Soon they were $5000.00 overdue and so they started to
yell again and to kick about Hoyland. As a stockholder, Hoyland
tried to get the corporation to take steps against the British
who were still trying to get out of paying out what they owed.
There were certainly cause for them to revise the contracts with
the British.”
Noon
Recess.
Afternoon session. Sapiro summing up.
Sapiro:
“The directors of the corporation did nothing in
accordance with the Plaintiff’s demand and hence this action.
WE think that this shows that the directors failed to take the
proper action to protect the corporation. We therefore ask that
the 4,779 shares of corporate stock be declared void and that
all activities of the corporation be declared void. Also, the
notes to Edwards, Reynolds and Ernsteins. That an examination of
all the accounts of the corporation take place. That a receiver
be appointed to collect amounts from Hutchinson, that permits be
considered to decide which are valid, that the owners of the
Rife Ray machine be considered to eliminate Hutchinson as the
owner, and that Hoyland and Rife as new owners make a new
arrangement with the British, that the Ernsteins become
creditors of the corporation also Reynolds and Edwards if the
court thinks this is fair, that it be decided who has exclusive
rights to the Rife Ray machine.”
Sapiro then cited a number of cases and read law applying to
this case. He pointed out that by law Hutchinson was guilty of a
felony in acting against the requirements of the corporation.
Judge Kelly interrupted to say that he thought the law had been
violated flagrantly by Hutchinson. Sapiro then outlined the
numerous frauds done by Hutchinson, that where stock has been
issued without a proper permit it becomes null and void and that
where the parties who took part in the transactions without
knowing illegality should be provided for. Judge Kelly wanted to
know what kind of relief could be offered them. Sapiro said,
that the receive would decide that. Judge Kelly asked if Sapiro
held the corporation responsible for Hutchinson’s criminal
actions. Sapiro said, “Yes”, decidedly. Sapiro said that he
would answer Judge Kelly’s direct questions as to what were
the assets of the corporation.
Judge
Kelly: “Well what are the assets?”
Sapiro:
“Outstanding contracts for machines out on lease, also,
rights to collect funds from Hutchinson.”
Judge
Kelly: “Would
the corporation collect anything from Hutchinson?”
Sapiro:
“Yes, certainly.”
Comperet:
“Well, Hutchinson has nothing.”
Sapiro:
“If it is possible to collect from him it should be
done. To continue with the assets, leaving aside the questions
of the void contract if we thought that it conveyed rights they
(these contracts), your big assets here are Dr. Rife’s name
and experience. The receiver would have to make new arrangements
with Dr. Rife and I think that Dr. Rife would be glad to do
this. I think also that the knowledge of the frequencies should
not be divided.”
Judge
Kelly: “I
wonder if Dr. Rife retained any rights in this contract?”
Sapiro:
“I don’t think that he did.”
Afternoon recess (middle recess).
Sapiro, still summing up.
Sapiro:
“Dr. Rife, Hoyland, the British and men working at the
factory all know the frequencies, and could use them on other
instruments. Your Honor asks how I interprete Hoyland’s
position. He is a stockholder of the corporation. He was their
technical advisor, he is an owner of the machine. He brings this
action as a stockholder. Even if he had been at fault there was
no misconduct on his part as a stockholder. Hoyland has nothing
to do with Hutchinson’s improper stock transactions. I doubt
if he could have given any more information to the British that
he did give. The board could have certainly made him give it.
The fact that the British were completely silent during the New
York meetings as regards to frequencies proves that he did what
he should do for the British. He might have given more
information, I don’t know all that he knows. I think that the
value of a going contract with Rife’s name attached to it can
be made important. I think the Hutchinson actions are a criminal
infraction of the Corporate Securities Act, and that the
corporation is definitely guilty along with Hutchinson and that
all the things done regarding the application for transfer of
the stock are done equally by the corporation. I think the
meeting of June 1st is completely void as the actions
authorizing this meeting were illegal and therefore void. I
don’t believe that all the people who bought this stock are
innocent. Edwards know, or should have known better. It is
difficult for me to believe that he could have been deceived.
Reynolds and the Ernsteins I think are totally without guilt,
and were taken in completely by Hutchinson. I think Mr.
Henderson and Mrs. Henderson are in a good class, they put some
money into the aero schools, but they were interested in the
Beam Ray machine, and I think they deserve some consideration,
although he said it was just a gamble with him. I think he was
persuaded to say this being rather fearful to talk in his
defense. I think a wise receiver should adjust all of this
though he would find it hard to get hold of any money. He might
get an issue of stock that would be legal.”
Judge
Kelly: “Has
the court the power to declare certain victims as preferred
stockholders?”
Sapiro:
“Yes, I think too, the stock in regard the owners is
void and a new arrangement should be made of the shares held by
the owners. I think Mr. Hutchinson should be out entirely, as he
did many criminal things, and that he has no place in the
organization at all. He has exploited everybody.”
Judge
Kelly: “You
are expecting a lot of work from the receiver?”
Sapiro:
“Yes, because I believe there is a great deal of profit
to be got from wise handling of this machine and of Dr. Rife’s
name.”
Sapiro finished on this note to the effect that the receiver
should be appointed to clear up the mess, and that Hutchinson is
the villain of the piece and should be kicked out entirely.
Comperet in his summing up for the corporation drew diagrams on
the black board by which he showed the Beam Ray had $5000.00 in
stock.
Comperet:
“Three were sold for $10.00 each to Olmstead,
Hutchinson and Cullen. Then you have a later transfer split up
into three large blocks, then you have the last transfer, by
which the large blocks were split up among the numerous
stockholders. When a man is dangling over an abyss it makes no
difference whether you cut the rope above him or below him. Mr.
Hoyland says that the transfer to him was void, and capable of
ratification, and he therefore cuts the rope and lets himself
drop. And to make it a cleaner cut he cuts it again for good
measure, thus he says he is not a stockholder. He has one more
connection with the corporation because there are three owners
of an invention who have a contract with the corporation. Mr.
Hoyland says that this contract is void, so he cuts the last
connection with the corporation. Upon that basis he assumes to
direct the course of the corporation and says that there shall
be a receiver appointed, taking it out of the hands of the
remaining valid stockholders and that is shall be run according
to his ideas. He never paid anything for the stock which is
void. He was paid for his technical advice on the basis of
commissions.”
Judge
Kelly: “Is
one who accepts shares through a transfer that was illegal
enabled to bring such an action as this?”
Comperet:
“He is not.”
This was argued back and forth by Comperet and Sapiro, the
decision seemed to be a draw for the time being. Judge Kelly
wanted to know what was the status of Hoyland. They could not
agree upon this. Comperet pointed out that Hoyland was not
fleeced out of anything and that he admits as much, but that if
the transactions had been fraudulent only the Ernsteins,
Reynolds or Edwards would have the right to sue since they gave
their money and got nothing in return.
Judge
Kelly: “What
would be their form of action against the corp?”
Comperet:
“I am not sure.”
Judge
Kelly: “They
want to get the corporation out of the hands of the
swindlers.”
Comperet:
“Hoyland is not in the position of the others, and he
is not bringing this action on their behalf. His position is
adverse to theirs. They have filed affidavits saying they are
against his action. The only thing he ever gave to the
corporation is the contract he says is void. We have here a
particular type of action, a representative suit, but it is
important to note who is represented. Hoyland must represent the
corporation as he does not represent the other stockholders.”
Comperet then cited cases similar to the Hoyland verses Beam Ray
suit.
Judge
Kelly: “Isn’t
the corporation injured when agents acting for the corporation
issue stock with an improper permit?”
Comperet:
“It depends upon the circumstance. Where every existing
shareholder consents to the issuance of the stock, the
corporation is not then considered to be injured. I think it
should be kept in mind this adverse position of Hoyland on one
side and all the others on another. I said at the first that
Hoyland’s desire is to break up the corporation.”
Judge
Kelly: “Can
one holding void stock proceed against the corporation and ask
for a removal of the
Court adjourned until Tuesday.
Tuesday, August 15: Morning session.
Comperet:
“We have one fundamental point to consider first.
Whether a man who by his own position in the case is not a
stockholder, never has been and never could be, is able to
maintain this action?”
Judge
Kelly: “Why
cannot the innocent victims maintain such an action?”
Comperet:
“Their remedy would be a different thing. The would
then be creditors, if the thing is so old that they can’t be
stockholders their only remedy would be a bankruptcy.”
Judge
Kelly: “It
seems the victims do not want the things finished. It appears
they want to kick out the directors who swindled them and name
other directors and keep the thing alive.”
Arguments followed along former lines by Comperet and Sapiro.
Judge Kelly said that he was determined to settle the point of
Hoyland’s right to bring the action. Sapiro maintains that
Hoyland was not bringing the action just for himself but for the
benefit of the corporation. He merely sets the machines of the
court in motion. He opens the door to the court of Equity. It
becomes a representative action in the name of the stockholders,
who don’t know how to protect themselves, for those who
won’t do so, and for the corporation as a unit. Comperet
produced legal evidence that a person holding shares of stock
that are void is not a stockholder and therefore cannot sue the
corporation Judge Kelly declared that the stock that was issued
was upon its face valid, though the corporate commissioner had
not permitted it, and that the persons who received the stock
that was issued without fraud took it in good faith. It seems
that we must determine the right of Hoyland to proceed, it being
contended by the defendant that the stock issued to him, if
void, gives him not right to maintain this action. Under section
310 of the civil code, if that contention is true then the
innocent victims of fraudulent transfers of stock and the
victims of illegal issue voided because not issued in accordance
with the Corporate Securities Act though apparently valid could
not avail themselves of the remedial provisions of section 310.
It would seem unfair and unjust to deprive such victims of such
rights as they might otherwise have under section 310. Because
of the very fraud and the illegality of a transaction by which
they have been victimized it is not enough to say they have
another remedy. The law gives to shareholders certain rights in
addition to all other rights and victims should not be deprived.
Other rights might not be sufficient to protect them. If they
are innocent and some directors or officers of the corporation
are dishonest the innocent victims should not by reason thereof
be deprived of any part of their rights, whether or not there
are other remedies. There is a provision for such an action as
is here brought. He then quoted a statute saying that the
directors could be removed in case of fraud etc., and could be
disbarred permanently. A fraudulent or dishonest director whose
fraud or dishonesty has made the stock void should not be
protected. Unquestionably the innocent victim of an illegal
transfer of stock is a de facto shareholder although it may
appear that the stock is void. A statute is remedial, it can’t
be denied.
Comperet:
“All innocent shareholders have the fullest rights to
process under section 310, because a violation of the Corporate
Securities administrator by an officer or officers of the
corporation unless that very fraud which they attract also
excludes them from the remedy. I cannot conceive it to be a
principle of Equity that a stockholder within the definition as
I have now announced it is under the circumstances which I have
indicated. A corporation can act only through its agents, the
agents only produce the dynamic consequences of the corporation
and it can hardly be conceived that a corporation could be more
greatly injured and its very rights to existence impaired to the
greatest extent than by the dishonesty of its agents. That
therefore an innocent party holding a share of stock valid upon
its face, essays to condemn that fraud and proceeds to remove
these officers. It would seem to the court that he or they
should have the right to the fullest extent. The court will hold
at this time that the word shareholder include an innocent
transfer of shares of stock valid on their face.”
Recess.
Comperet:
“The only persons who are in the positions of innocent
victims are those whom the action seeks to remove. The only ones
who put a copper cent into the company are Edwards, Reynolds,
and the Ernsteins, who are directors. If the stock were for some
reason merely voided the remedy would be simple. But if the
thing is beyond “of reviving”, what then?”
Judge
Kelly: “I
am assuming that the Plaintiff is appearing on behalf of the
corp?”
Comperet:
“I made the statement that Hoyland’s desire to wreck
the corporation and I think he has proven this. We start out
with a corporation undertaking the business of the manufacturing
and distribution of Rife Ray machines. From the beginning
Hoyland was in the place of business of the company. He saw all
that went on. He says that certain directors stated that the
purpose of the corporation was to put over a course of aviation.
The statement was simply a matter of personal opinion. We come
to this matter of the validity of the stock. We have in the
first place the valid issue of three shares. Because the three
shares remained with Olmstead, Hutchinson and Cullen. We have
the Jun transaction here that’s the point in which the
question comes up whether the number of directors was increased
and the vacancies left unfilled and then the resolution passed
for application to issue additional shares, or whether
additional board of directors before the increase voted the
increase. I think it should be noted in this that the
corporation’s internal difficulties are due to action taken
without legal guidance. But at this particular time they had the
advice of Mr. Fickerson and he would not permit it to go astray
upon a point so easily recognizable as that. The application for
a supplemental permit shows that the increase of the board of
directors was something yet to be done. It was so simple to do
it the right way; nothing could be gained by doing it the other
way. It seems reasonable to assume that is was done as Mr.
Fickerson says it was. He would not be a party to such
misrepresentation.”
Judge Kelly: “He
may have been misadvised.”
Comperet:
“But this all took place in his office. The meeting was
held there. He guided them through action. The increase was made
for the sold purpose of getting a quorum for meetings.”
Noon Recess.
Judge
Kelly: “Do
you consider that this stock was issued validly?”
Comperet:
“Yes, there are two things to consider, the transfer
and the issue. The issue was entirely valid.”
Judge
Kelly: “Do
you consider that these three hold the stock as agents of the
corporation?”
Comperet:
“That was the testimony of Olmstead and we have against
it the testimony of Hutchinson.”
Judge
Kelly: “Frankly,
I prefer the testimony of Mr. Olmstead.”
Comperet:
“In many ways, this company faces a $50,000.00 law
suit. I can’t see how they can hope to win against the
British. The corporation’s agent Hoyland caused this suit to
be brought. The British were duped into signing a new contract
and they parted with $1500.00. Hoyland says the receivers should
negotiate a new contract with the British. The British will have
nothing to do with any group in which Hoyland figures.”
Sapiro
then called upon Comperet to prove this.
Judge
Kelly: “Are
these people on the board capable of carrying on the business of
the corporation?”
Comperet:
“If they are left alone, certainly. Hoyland has decided
that he would like to compete with this company by his own
activities, and he will ask the British to pay much more for an
exclusive license which he claims they do not have.”
Judge
Kelly: “Were
the receiver an honest man and skilful, do you think that could
be accomplished by Hoyland?”
Comperet:
“What can a receiver do? We have a company that is just
about broke, I have no doubt, that in his closing argument Mr.
Sapiro will say he will lend the company the money necessary to
carry it on.”
Sapiro objected violently. Judge Kelly laughed and said he
thought that was a good suggestion.
Judge
Kelly: “Where
would this receive get his compensation?”
Comperet:
“I wonder! The corporation has had some machines set
up. Mr. Sapiro has said that the only assets that the
corporation has is the use of Dr. Rife’s name, but Hoyland has
said that the design and the frequencies of the machine itself
is not that of a Rife Ray machine, and that the machine is in
fact different. The company must have these machines junked,
must draw up new designs according to Dr. Rife’s ideas, must
have Dr. Rife OK these designs, etc. I don’t think Dr.
Rife’s ideas would permit Hoyland to do this.”
Sapiro objected volubly.
Comperet:
“The board of directors cannot be changed just because
the fly in the ointment doesn’t happen to like them. The
British situation resulted from Hoyland’s actions and his
failure to cooperate with them.”
Judge
Kelly: “If
the directors are just going to sleep and let Hutchinson or
Hoyland run things, how far can they be expected to carry on the
business of the company satisfactorily?”
Comperet:
“Where have these innocent victims been guilty of
fraud?”
Judge
Kelly: “I
think they should all have prosecuted Hutchinson. Does he owe
money to the corp? The suit should be vigorously pressed.”
Comperet:
“I agree, but where this money will come from that I
don’t know.”
Judge Kelly:
“Maybe Mr. Sapiro will put it up. We don’t often get
a rich Los Angeles attorney down here. Well, it isn’t enough
to have the board of directors honest. They must have ability.
Take bank officials. Their responsibilities are tremendous. They
have a great deal to consider and so have the directors of this
organization. They must act. They must be dynamic. What have
they done?”
Comperet:
“The Corporation is broke. They are going to have to
secure permission from the corporate commissioner to finance
themselves by some sale of stock for cash. It will take enough
money to carry them through the activities that will put the
real Rife Ray machines on the market. We will have to get a new
engineer and start all over again.”
Judge
Kelly: “Would
anyone invest in a corporation about to be sued by the British
group?”
Comperet:
“Worst of all, would they invest in a corporation that
was in receivership? As regards they British suit, we filed a
cross complaint naming Hoyland as defendant. If the British can
make any case against the corporation we can make a case against
Hoyland. I have told the British this, if they succeed in
getting a judgment against us we will assign them to our
judgment against Hoyland.”
Sapiro:
“This is conniving of the weirdest kind I have ever
heard about. It’s outrageous.”
Comperet:
“Not at all, we say that the debt to the British shall
be paid by the one who did the wrong. If they don’t get a
judgment against us they won’t get one against Hoyland. If
that’s a conspiracy Mr. Sapiro, you can make the most of it.
Now, Mr. Hoyland is the only one who felt that he was free to
license other corporations. He knew Beam Ray was getting an
exclusive license, everyone else testified that they knew it. If
there are to be any number of license handed out we might as
well close up shop. Mr. Hoyland waited until it suited him to
decide that the license was not exclusive. Dr. Rife is not going
to be a party to a fraud, and if the machines we sell are not
the true Rife machines they are a fraud.”
Judge
Kelly: “How
long with the directors carry on these plans you have
outlined?”
Comperet:
“We are ready to go as fast as we can.”
Comperet called upon Mr. Williams who said that as far as he
knows 85 percent of the directors have agreed to follow
Comperet’s advice. Judge Kelly however, seemed to feel that
the 15 percent was s definite consideration.
Judge
Kelly: “Do
they all now appreciate the fact that a promoter is not a
lawyer?”
Comperet:
“They have had an expensive lesson.”
Judge
Kelly: “Most
of these people seem to think that a promoter is a very clever
man.”
Recess. Afternoon Recess.
Comperet:
“There are one or two other things that rate a reply. I
cannot take time to go into detail unless you want to take
another day?”
Judge
Kelly: “I
would like to finish this up today. I want to know what will be
the consequences to the innocent investors?”
Comperet:
“We have those who put their money into the thing in
order to make these machines according to Hoyland’s d
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