1939 Beam Ray Trial Transcript

 

Pages 1-10

 

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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