Robert J.D. Mackie agst. Richard P. Lounsbery and Ben Ali Haggin, James B. Haggin, and Wells, Fargo & Co

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BANCROFT
LIBRARY

THE LIBRARY

OF

THE UNIVERSITY

OF CALIFORNIA

Robert J. D. (Mackte

AGST.

Richard F. Lounsbery and
Ben Ali Haggin, James B.
Haggin, and Wells, Fargo &
Co.

The defendant James B. Haggin, by this an-
swer to the first cause of action in the complaint
herein alleged, avers and alleges :

1. This defendant admits the allegations of the
first section or subdivision of the complaint ex-
cept that he denies that he is or has been a di-
rector or vice-president of the defendant, Wells,
Fargo & Co., since the eighth day of September,
1879.

2. This defendant denies on his information
and belief, each and every allegation contained in
the second section or subdivision of the com-
plaint, except that he admits that the defendant,
Wells, Fargo & Co., is a corporation created and
existing under and by virtue of the laws of Colo-
rado, and was at the times mentioned in the com-
plaint and is authorized among other things to

4 buy, sell and dispose of gold or silver coin and
bullion, gold dust, money, and securities for money ;
and except that this defendant has no knowledge
or information sufficient to form a belief as to
whether or not the said corporation stated or rep-
resented or advertised in the City of New York
or elsewhere, that a principal part, or any part of
its business was to buy and sell, or was to buy or
sell mining stocks and other Pacific Coast securi-
ties, or any such securities whatsoever, or as to
what statements or representations, if any, said cor-
poration has made in the City of New York or else-
where relative to the buying or selling of mining
stocks or other Pacific Coast securities; and ex-

5 cept that this defendant admits that the principal
place of business of said corporation defendant was
at and in the City of San Francisco at the times men-
tioned in the complaint, and that the said corpor-
ation had a place for the transaction of business, at
and in the City of New York, and that it carried
on a large part of its business thereat, and that
said business at said City of New York was in the
charge and under the management of Hosmer B.
Parsons, who was, at the times mentioned in the
complaint, the assistant secretary of said defendant
corporation, and the chief executive officer thereof,
at and in the said City of New York.

6 3. This defendant denies each and every alle-
gation contained in the third section or subdivision
of the complaint, except that he admits that during
the times mentioned in the complaint, the Excelsior
Water and Mining Company was, and still is, a
corporation dul}^ created and existing under and
by virtue of the Laws of the State of California,
and that it was incorporated thereunder on or
about March 9, 1877, and that the place where its
principal business was to be transacted was to be
and was the City and County of San Francisco and
State of California; and except that this defendant
admits that the number of directors or trustees of

YUT'T^-^

said corporation was to be and was five, and that 7
all the officers of said company, except the assistant
secretary thereof, at the times mentioned in the
complaint, were citizens and residents of said State
of California, and that at the date of its said incor-
poration, its capital stock was fixed at five millions
of dollars, divided into fifty thousand shares, of
one hundred dollars each; and except that this
defendant has no knowledge or information suf-
ficient to form a belief as to whether or not at
the time of its incorporation said company issued
about 36,464 shares of its said stock, or as to how
many shares of its said stock, if any, it issued, or
whether or not from time to time thereafter it is-
sued other shares thereof, so that on the fifteenth 8
day of May, 1879, 43,326 shares of the said stock,
or any other number of shares thereof, had been
issued or were then outstanding, or whether or
not the same were of the par value of $4,332,600,
or any other sum; and except that this defendant
admits that all the votes, acts, and resolutions of
said company, during the times mentioned in the
complaint, were made, passed, and enacted at
meetings of the said company or of its directors
or trustees, held within said State of California.

4. This defendant denies that during the year
1879, or thereafter, or at any time, the defendants
or either or any of them wrongfully or fraudulent- 9
ly, or otherwise, conspired with the or any of the
directors, officers, stock- holders or employees of
the said Excelsior Company, or with any person
or persons whomsoever, to obtain the possession or
control of said Excelsior Company, or for any
other purpose; and this defendant, denies that
this defendant, or the other defendants herein, or
either or any of them, wrongfully or fraudulently
or otherwise conspired with any person or persons
whomsoever, for the purpose of procuring an in-
crease of the capital stock of said Excelsior
Company, or of obtaining the control of the or

10 any stock of said company, or of selling or dis-
posing of the said stock or any thereof, at a price
beyond its real or intrinsic value, or at any
price, to plaintiff or to plaintiff* s alleged assign-
ors, or to any person or persons, or to depress
the price of said stock in the market, or to repos-
sess themselves of said stock, or to control said
company, or to defraud those who had or might
become purchasers of said stock, or for any pur-
pose or purposes whatever.

This defendant denies each and every allegation
contained in the fourth section or subdivision of the
complaint except that he admits that in or about
the month of April, 1879, this defendant and the

11 defendants Lounsbery & Haggin procured and
obtained from certain persons then owning
part of the capital stock of said Excelsior
Company, options or calls thereon, whereby the
said owners of said capital stock in substance
agreed to sell and deliver to said defendants
Lounsbery & Haggin, and this defendant, or their
appointees, about 67,000 shares of said stock upon
request and demand, at a price or sum in said op-
tions agreed upon, and that thereafter, but subse-
quent to June 5, 1879, this defendant, and the
defendants, Lounsbery & Haggin, from time to
time, exercised their said options and purchased
said stock, in sundry lots amounting in the aggre-

12 gate to to wit: about 67,000 shares; and except
that this defendant has no knowledge or informa-
tion sufficient to form a belief as to whether or
not the person or persons from whom said options
or calls were obtained, then owned the principal
part of said capital stock; and except that
this defendant admits that on or about May
15, 1879, the original capital stock of said Ex-
celsior company was, by the Board of Trustees
of said company, voted to be and was increased
from $5,000,000, divided into 50,000 shares, to
$10,000,000, divided into 100,000 shares of the
par value of $100 each, and also that two of

said new shares of stock were thereafter issued for 13
each one of the old shares of stock then outstand-
ing; and except that this defendant alleges that
he has no knowledge or information sufficient to
form a belief as to whether or not 13,348 shares
of the capital stock of said Excelsior Company, or
any other number of shares of said capital stock,
were, on or about June 5, 1879, or at any other
time, issued or divided among the then stock-
holders of said company, pro rata, or otherwise.

And this defendant particularly denies each and
every allegation of said section or subdivision of
the complaint herein charging or tending to charge,
or attempting or purporting to charge this defend-
ant with any fraud or wrong, or fraudulent or ille- 14
gal or other combination or conspiracy.

5. This defendant denies each and every alle-
gation of the fifth section or subdivision of the
complaint, except that he admits that he sold large
amounts of the new stock of said Excelsior Com-
pany in the City of New York and elsewhere,
through the defendants Lounsbery & Haggin;
and except that he admits that the firm of
Lounsbery & Haggin stated they had for sale, and
bought and sold, certain stock of said Excelsior
Company, in the City of New York and elsewhere ;
and except that this defendant alleges that he has
no knowledge or information sufficient to form a 15
belief as to whether or not said Lounsbery «fe Hag-
gin, or either of them, made, or caused to be made
the or any of the statements or representations in
said fifth section or subdivision of the complaint
alleged to have been made, or to have been caused
to be made by the defendants Lounsbery & Hag-
gin, or either of them, save and except the repre-
sentations hereinabove in this subdivision of this
answer admitted; and except that this defendant
alleges that he has no knowledge or information
sufficient to form a belief as to whether or not
books for public subscriptions for the stock of said

6

16 Excelsior Company were opened at the said New
York office of said defendant corporation Wells,
Fargo & Co. ; and except that this defendant al-
leges that he has no knowledge or information
sufficient to form a belief as to whether or not the
defendant Wells, Fargo k Co. made or caused to
be made the, or any of the statements or repre-
sentations in said fifth section or subdivision of
the complaint alleged to have been made, or to
have been caused to be made, by said defendant
Wells, Fargo & Co., or as to what statements or
representations, if any, were made or caused
to be made by said defendant Wells, Fargo & Co. ;
and except that this defendant alleges that he

17 has no knowledge or information sufficient to form
a belief as to whether or not the defendant. Wells,
Fargo & Co., received the whole or any part of the
amounts paid for any subscriptions to any stock of
said Excelsior Company, or whether or not said
Wells, Fargo & Co. bought or sold, or pretended
to buy or sell, any of said stock, or held or ex-
changed, or transferred any thereof, or whether or
not the defendants Lounsbery & Haggin and Wells,
Fargo & Co., or either, or any of them, loaned any
sum or sums of money upon said stock, upon mar-
gin, or otherwise; and except that he denies on
his information and belief, that said Lounsbery &
Haggin and said Wells, Fargo & Co., or either, or

18 any of them, made any false or pretended sales
of said stock ; and except that this defendant admits
that the office of the said Excelsior Company
for transfers of its stock, the payment of divi-
dends, and the receipt of the assessments upon
its stock, was at the office of said Wells, Fargo
k Co., and continued to be so until in or
about the month of April, 1882; but this defend-
ant alleges, on his information and belief, that
said Wells, Fargo k Co. was not at any time the
agent of said Excelsior Company, and did not at
any time represent or act for the said Excelsior
Company in the transfer of its stock, the payment

of dividends, or the receipt of assessments upon 19

its stock.

6, This defendant denies each and every alle-
gation of the sixth section or subdivision of the
complaint, except that he admits that a report
was made by Louis Janin, mining engineer, of
the Excelsior Water and Mining Company, be-
fore the purchase by these defendants, or any of
them, of any of the stock of said Excelsior Com-
pany, and before these defendants, or any of them,
had any connection whatever with said Excelsior
Compan}^, which said report stated that said Janin
had made an estimate of the probable product of
the mines of said Excelsior Company, and that his 20
estimate of such probable product was $646,580
per annum; and which report also stated that the
said Janin had made an estimate of the cost of
working the said mines, and that he estimated the
annual cost of working the said mines to be -$200,-
000, and which said report contained the further
statement that the said Janin had estimated the
net profit to be derived from the mines of said
company, and that he estimated the same to be at
least $400,000 per annum, and which said re-
port also contained a statement made by the
said Janin that the bonded debt of said com-
pany amounted to the sum of $250,000, bearing
interest at the rate of 10 per cent, per an- 21
num. and that said debt was to be paid in install-
ments of $50,000 per annum, and which said report
also contained a statement that the said Janin had
made an estimate of the probable revenues of the
said Excelsior Company after its mining operations
should have finally ceased, and that he estimated
the probable revenues from sales of water and of
merchandise and from rents and earnings of the
farm to be at least $100,000 per annum.

This defendant alleges on his information and
belief, that said report of said Janin was after-
wards printed in pamphlet form and given to pur-

8

22 chasers of said stock in said city of New York.

7. This defendant denies each and every alle-
gation of the seventh section or subdivision of the
complaint except that he admits that the hydraulic
process is the only process by which the mines of
said Excelsior Company could or can be profitably
worked ; and except that he admits that on or about
the 25th day of May, 1881, said Excelsior Company
was by certain legal proceedings in the Courts of
California, enjoined from so working its said mines
as to deposit in, or suffer to flow therefrom into the
Yuba River or its tributaries, what is commonly
called ''mining debris," to wit: earth, sand, gravel,

23 muddy water, etc. ; and that thereafter said com-
pany w^as likewise so enjoined by certain other pro-
ceedings in the Circuit Court of the United States.

8. This defendant denies each and every alle-
gation of the eighth section or subdivision of the
complaint, except that he admits that on or about
the eighth day of July, 1879, this defendant was
appointed by the Board of Directors or Trustees of
said Excelsior Company, a trustee of said company
to fill a vacancy then existing in said board, and
that he was subsequently, to wit, on or about
December 11, 1879, elected vice-president thereof,
and that he continued to be such vice-president

24 until on or about the 15th day of March, 1881;
and this defendant alleges that the Board of Di-
rectors or Trustees by which this defendant was
so appointed a trustee, was a board which had
been elected prior to the purchase by these de-
fendants, or any of them, of any stock in said
company, and prior to any connection by any
of these defendants therewith.

9. This defendant denies each and every alle-
gation contained in that portion of the ninth sec-
tion or subdivision of the complaint included in
folios 35, 36, and 37, and down to the figures

I

" $600,000 " in folio 88, except that he admits, and 25
upon his information and belief alleges that in or
about the month of October, 1879, said Excelsior
Company by and through said defendant Louns-
bery, who then was and ever since has been a
member of the Stock Exchange in the City of
New York, applied at said Stock Exchange to place
upon the list of the money securities dealt in
thereat, the shares of the capital stock of said Ex-
celsior Company, and that for that purpose the said
Excelsior Company made and delivered to and
filed with the said Stock Exchange a statement
which was and purported to be an official state-
ment of the said Excelsior Company ; and except
that this defendant has no knowledge or informa- 26
tion sufficient to form a belief as to whether or
not said statement was verified by said Parsons,
acting, or claiming to act, as assistant secretary of
said Excelsior Company, or otherwise; and ex-
cept that this defendant has no knowledge or infor-
mation sufficient to form a belief as to what
statements or representations were contained in
said statement, or as to whether or not said
statement stated or represented that the tun-
nels, ditches, pipes, flumes and machinery of said
Excelsior Company had cost the sum of $1,802,-
542, or that the receipts from the said property
prior to the organization of said company had
been the sum of $6,059,000, or that the receipts 27
of said company from its organization on March
9, 1879, to October 1, 1879, had been the sum of
$907,000, or that said company then had cash on
hand (bullion), to the amount of $12,294, or that
the floating debt of said company amounted to the
sum of $25,000, or that the amount expended in
improvements and underground improvements on
the property of said company had been $2,500,000;
or that the said capital stock of said company was
$10,000,000 stock assessable, and had been fully
paid for its said property by said company, or that
the dividends already paid amounted to the sum

10

28 of $600,000, or that the Xew York office of said
company was at the office of said Lounsberj & Hag-
gin in New York city, or that the office of said
company for the transfer of its stock and the pay-
ment of its dividends was at said New York office
of said defendant, Wells, Fargo & Co.

This defendant denies on his information and
belief each and every allegation contained in that
portion of the ninth section or subdivision of the
complaint commencing with the word " whereas"
on line 2, folio 38, and terminating with the word
"thereabouts" on line 4, folio 41, except that this
defendant denies that he at any time knew the or
any of the alleged facts, set forth in said last men-

29 tioned portion of said section or subdivision nine,
to be facts.

This defendant denies each and every allegation
of the ninth section or subdivision of the com-
plaint contained in folios 42 and 43, except that
he admits that the said Stock Exchange did on or
about November 13, 1879, admit the said stock of
said Excelsior Company to be listed as one of the
securities regularly dealt in at said Exchange, and
that since that time, said stock has been, from
time to time, publicly bought and sold at said
Stock Exchange ; and except that he admits that
prior to March 1, 1882, the defendants Lounsbery
& Haggin, and this defendant through the defend-

30 ants Lounsbery & Haggin, sold to various persons
certain shares of the stock of said Excelsior Com-
pany ; and except that he has no knowledge or in-
formation sufficient to form a belief as to whether
or not prior to March 1, 1882, or at any other
time or times said defendants sold or disposed of
84,088 shares or thereabouts, of the stock of said
Excelsior Company, or as to whether or not said
defendants or any of them at any time sold or
disposed of any of said stock whatsoever to plaint-
iff and his alleged assignors or to either or any of
them.

11

10. This defendant denies each and every alle- 31
gation of the 10th section or subdivision of the
complaint except that he admits that fourteen
dividends in number were voted, declared, made
payable and paid by the Board of Trustees of said
Excelsior Company, and were made payable and
paid at the transfer office of said company, at No.

65 Broadway, jS^ew York City, or at the office of
the company in the city of San Francisco at the
option of the stockholders, monthly, during the
months of August, September, October, Novem-
ber and December, 1879, and January, Febru-
ary, March, April, May, June, July, August and
September, 1880, and that each of said dividends
was for twenty-five cents per share on each of said 32
100,000 shares of the capital stock of said Excel-
sior Company, making in all the sum of $25,000
for each of said dividends, and amounting in all
to the sum of $350,000 or thereabouts.

11. This defendant denies, upon his informa-
tion and belief, each and every allegation
of the eleventh section or subdivision of the
complaint, except that this defendant denies,
that at either or any of the times mentioned or
referred to in said eleventh section or subdivision,
he knew that the said dividends were not, or that
any of them was not, earned by said Excelsior
Company, or that the said company had not the 33
money wherewith to pay the same, or either of
them, or that the same, or either or any thereof,
were not made or paid out of, or from the surplus
profits arising from the business of said corpora-
tion, or in the cases or manner allowed by law;
and except that this defendant denies, that the
money to pay said dividends, or either or any of
them, was obtained by said defendants, or any of
them, either alone or in conjunction with any per-
son or persons whomsoever, by any improper,
wrongful, fraudulent, or illegal overdraft or over-
drafts, in the name of said company or otherwise,

12

34 upon the Bank of California, or elsewhere; and
except that this defendant denies, that said money,
or any thereof, was wrongfully or fraudulently, or
otherwise advanced or obtained, by the or any of
the defendants, in aid of any wrongful, fraudu-
lent or other conspiracy ; and except that this de-
fendant denies, that these defendants, or any of
them, divided, withdrew or paid over to the stock-
holders of said company, or to any of them, or to

• any person or persons whomsoever, $350,000, or
any other amount of the capital, or capital stock
of said corporation; and except that this defend-
ant admits, that certain sums of money were, from
time to time, advanced to said Excelsior Company

35 by sai(i Lounsbery & Haggin, and by this defend-
ant and that portions of said dividends were paid
therewith; and exept that this defendant denies
each and every allegation of said eleventh section
or subdivision, charging or tending to charge, or
attempting or purporting to charge this defendant
with any fraud or wrong, or fraudulent or illegal,
or other combination or conspiracy.

12. This defendant denies each and every
allegation of the twelfth section or subdivision of
the complaint, except that he has no knowledge
or information sufficient to form a belief as to what
the books of the said Excelsior Company showed

36 as to its indebtedness at the time or times referred
to in said twelfth section or subdivision of the
complaint; and except that this defendant admits
that the said company at one time appeared, by
its books, to be largely in debt to said Bank of
California, and to said def ndants Lounsbery &,
Haggin, and except that he has no knowledge or
information sufficient to form a belief as to whether
or not said company appeared by its books to be
largely or otherwise in debt to this defendant, or
to the defendant Wells, Fargo & Co. ; but this de-
fendant alleges, on his information and belief,
that at the times said indebtedness was incurred

13

said company had abundant assets with which to 37
pay each and all its debts, as well as sufficient
surplus profits with which to pay all the divi-
dends by it declared and paid.

13. This defendant alleges, that he has no
knowledge or information sufficient to form a be-
lief as to what the indebtedness, if any, of said
Excelsior Company, at the dates mentioned in the
thirteenth section or subdivision of the complaint,
appeared by its books to be, or as to whether or
not, by the books of said company, its indebted-
ness at the several dates set forth in said thirteenth
section or subdivision of the complaint appeared

to amount to the respective sums therein set 38
forth, or to any thereof, or to about the same, or
any thereof.

14. This defendant denies each and every alle-
gation of the 14th section or subdivision of the
complaint, except that he admits that the indebted-
ness of said Excelsior Company at or on or about,
the or some of the several dates mentioned in the
13th section or subdivision of the complaint was
composed in part of over drafts made from time to
time by and in the name of said company upon
the Bank of California ; and except that he has
no knowledge or information sufficient to form a
belief as to what part or portion of the indebted- 39
ness of said company was composed of such over-
drafts or as to whether or not such overdrafts on

or about January 31, 1880, amounted to about the
sum of $102,208.57 or any other sum; and except
that he admits that after January 31, 1880, the
defendants Lounsbery & Haggin loaned and ad-
vanced to said company at or about the following
dates, the following sums of money, to wit:

14

40 On February 3, 1880 $23,088

On March 4, 1880 25,000

On April 3, 1880 25,000

On May 3, 1880 25,000

On June 3, 1880 25,000

On July 3, 1 880 25,000

On August 5, 1 880 25,000

On September 6, 1880 25,000

and other large sums of money, and also admits
that after January 31, 1880, this defendant loaned
and advanced said company certain sums of money,
and that portions of said sums of money so loaned
and advanced by said Lounsbery & Haggin and b}^

41 this defendant, were used in the payment of some
or portions of the dividends in this answer above
mentioned, and except that this defendant admits
that on or about the dates of the respective loans or
advances by the said Lounsbery & Haggin in this
subdivision of this a.nswer above set forth, this
defendant for and on account of the said Louns-
bery & Haggin, took the checks of said company
on said Bank of California, for the said sums so
loaned amounting in all to about $198,088, and
also admits that at the times of taking said checks
this defendant knew that the said Excelsior Com-
pany had no money in said bank wherewith to
meet or pay said checks; and also admits that said

42 checks so given were held and retained by said de-
fendants Lounsbery & Haggin, or by this defendant
acting on their behalf without payment and with-

■ out presentation for payment until on or about
November 11, 1881, and also admits that at said
last mentioned date the said checks were cancelled
and delivered up to said company, and the prom-
issory note of said company was delivered to said
Lounsbery & Haggin, or to this defendant on
their behalf, therefor.

15. This defendant denies on his information
and belief each and every allegation contained in

15

that portion of the 16th section or subdivision of 43
the complaint between the beginning thereof and
the word "affairs," on the 10th line of folio 53;
and this defendant denies each and every alle-
gation contained in the remaining portion of said
fifteenth section or subdivision of the complaint
except that he admits that no annual meeting of
the stockholders of said Excelsior Company was
in fact called or held during the year 1880 ; and
except that he admits that the trustees of said
company who had been elected in the year 1879,
held over and continued in office and power for
another year, and until the stockholders' meeting
held on or about March 15, 1881, save and except
as new trustees were appointed to fill vacancies 44
from time to time occurring ; and except that he
has no knowledge or information sufficient to form
a belief as to whether or not in March 1880, said
Excelsior Company appeared by its books to be in
debt in the sum of $150,000, or upwards or any
other sum.

16. This defendant denies each and every alle-
gation of the 16th section or subdivision of the
complaint, except that he admits that on or about
May 25, 1880, the trustees of said Excelsior Com-
pany duly voted and directed that $50,000 of the
mortgage bonds of said company due and payable
July 1 , 1880, should be redeemed on the last afore- 45
said date; and except that he has no knowledge or
information sufficient to form a belief as to whether
or not at or about that time said company received
from its said mines and property, sufficient returns
to have paid said $50,000, of bonds so ordered to
be redeemed, or as to what returns said company
received at or about said date ; and except that
he admits that the defendants Lounsbery & Hag-
gin, or this defendant on their behalf, on or about
July 1 , 1880, loaned and advanced to said company
the sum of $50,000 for the purpose of taking up said
bonds, and that the said bonds were held and re-

16

46 tained by this defendant for and on behalf of said
Lounsbery & Haggin until the same were returned
to the said company and cancelled on or about
November 11, 1881 as hereinafter stated or admit-
ted.

17. This defendant denies each and every alle-
gation contained in the 17th section or subdivision
of the complaint, except that he alleges on his in-
formation and belief that in or about the month
of September 1880, said Excelsior Company made
and published and circulated among its stock-
holders, the following statement giving the true
reasons for suspending the payment of dividends,

47 to wit:

" Office of the Excelsior Water and Mining
" Company,

" 202 Sansome Street, San Francisco,

"September 13, 1884.

'' To the Board of Trustees of the JExcelsior Water and
" Mining Company:

"Gentlemen: — Agreeably to your instructions,
" I have visited Smartsville, and made an examina-
" tion of the mines, ditches, and other property of
" the Excelsior Water and Mining Company. The

48 " only material changes in the condition of the
" mines, since my visit in May last, have occurred
"in the Deer Creek and Smartsville claims. In
" both these claims the bedrock has pitched con-
" siderably, carrying with it the rich channel
" gravel. While this circumstance largely in-
" creases the amount of the best gravel, yet the
" sinking of the bedrock necessitates new cuts for
" washing.

" In the Deer Creek claim which, as you are
" aware, is the most extensive mine owned by the
" company, the pitch of the bedrock was over
" fifty feet, and the superintendent found it neces-

17

sary to construct a branch tunnel to bottom 49
the channel which cannot be reached through
the present open cuts.

'' Likewise in the Smartsville claim, the bedrock
pitched some thirty-five feet below the mouth of
the incline leading to the tunnel. Consequently
operations of washing had also to be suspended
here in order to extend the bedrock tunnel
under the deep gravel, and make another inclined
uprise through it to the surface.

" This claim is the next most extensive, and
much the richest of any owned by the company.

" These unforseen contingencies have compelled
the superintendent to run entirely upon the
lower grade gravel, and this fact, taken in con- 60
nection with the unprecedentedly severe winter of
1879-80, suggests the wisdom of deferring fur-
ther dividends until such time as the tunnel work
is completed.

'' I am convinced from the present improved
appearanc of the mines that with a full supply of
water the future results will be highly satis-
factory.

'' Yours respectfully,

"(Signed) L. C. McAFEE,

" Secretary."

18. This defendant denies each and every al- 51
legation contained in the 18th section or sub-
division of the complaint, except that he denies
on his information and belief that the defendants,
Lounsbery & Haggin, or either of them, or the
defendant, Wells, Fargo & Co., made the or either

or any of the statements or representations in the
said section or subdivision of the complaint al-
leged to have been made by the defendants, or
either or any of them.

19. This defendant denies each and every al-
legation of the 19th section or subdivision of the
complaint.

18

52 20. This defendant denies each and every al-
legation of the 20th section or subdivision of the
complaint.

21. This defendant denies each and every al-
legation of the 21st section or subdivision of the.
complaint.

22. This defendant denies eachand every alle-
gation of the 22d section or subdivision of the
complaint, except that he admits that certain of
the stockholders of said company executed and
delivered to him proxies upon their stock to be
used at the meeting of stockholders of said com-

53 pany held on or about March 15, 1881, which prox-
ies were in substantially the following form, to wit:

Know All Men by These Presents that
I do hereby make, constitute, and appoint J. B.
Haggin my true and lawful attorney for me,
and in my name, place, and stead, to vote as my
proxy at any stockholders' meeting of the Ex-
celsior Water and Mining Company, or adjourn-
ment of said meeting according to the number of
votes which I should be entitled to if personally
present, with full power of substitution and

revocation. Witness my hand and seal at

the day of 1881.

54

Seal.

Witness:

and except that he has no knowledge or informa-
tion sufficient to form a belief as to whether or not
any of the proxies so executed and delivered to
him were proxies of the plaintiff or of plaint-
tiffs' alleged assignors or any thereof; and ex-
cept that he denies on his information and be-
lief that the proxies so executed and delivered to
him represented a majority of the stock of said
Company, or were given by a majority of the stock-

19

holders thereof; and except that he admits that at 55
said meeting, the resolution substantially in the
form alleged in folios 76 and 77 of the complaint,
was duly adopted; and except that he admits that
at said meeting there were personally present the
five persons named in folio 77, of the complaint;
and except that he has no knowledge or informa-
tion sufficient to form a belief as to whether or
not said five persons were the onl}^ persons who
were personally present at said meeting; and ex-
cept that he admits that the proxies executed and
delivered to him authorized and empowered him
to substitute some one in his place and stead, and
that under and by virtue of the powers given to
him by said proxy this defendant had, prior to 56
said meeting, transferred said proxies to the name
of said Joseph Clark ; and except that he alleges
on his information and belief that there were
present and voting at said meeting, in person or
by proxy, a majority of the stockholders of said
company, and stockholders representing and own-
ing a majority of the capital stock thereof.

23. This defendant denies each an every alle-
gation of the 23d section or subdivision of the
complaint, except that he admits and on his in-
formation and belief alleges that the said Louis 0.
McAfee, as Secretary of said company, presented
to the said stockholders his report for the year 57
1880; and except that he denies on his informa-
tion and belief that said report was not in fact
presented to said meeting or properly brought to
the notice of the stockholders; and except that he
has no knowledge or information sufficient to form
a belief as to whether or not said report in fact
covered the transactions of the said Excelsior
Company for a portion of the year 1879; and ex-
cept that he admits that by said report it was
stated and represented that the defendants,
Lounsbery & Haggin, had, during the year 1880,
loaned to said company, a large sum of money;

20

■58 and except that he has no knowledge or informa-
tion sufficient to form a belief as to whether or not
said report stated or represented that the sum of
money so loaned by said defendants, Lounsbery &
Haggin, was the sum of about $257,088; or as to
what sum was stated or represented to have been
so loaned by said Lounsbery & Haggin; or as to
whether or not it was stated or represented in said
report that said company had, during the time
embraced in said report, or at all, borrowed from
the Bank of California, the sum of $73,520.46, or
any other sum ; or as to whether or not a copy of
said report was, at or about that time or at all,
sent to the defendants, Lounsbery & Haggin, or

59 either of them, or to the defendants, Wells, Fargo
& Co. ; or as to whether or not the said report was
received by said Lounsbery & Haggin, and Wells,
Fargo & Co., or either or any of them, at their
offices in the City of New York or elsewhere ; or
as to whether or not said Lounsberry & Haggin,
or either of them, or said Wells, Fargo & Co.,
denied to the stockholders of said Excelsior
Company, or at all, the existence of said report, or
that it had ever been made, or that they or either
of them ever had seen it or had a copy of it.

24. This defendant denies each and every al-
legation of the 24th section or subdivision of the

60 complaint.

25. This defendant denies each and every alle-
gation of the 25th section or subdivision of the
complaint, except that he admits and alleges on
his information and belief that the Board of Trus-
tees of said Excelsior Company laid and levied an
assessment of one dollar per share upon each and
every share of the stock of said company on or
about the 6th day of June, 1881, and a further
assessment of fifty cents per share upon each and
every share of the said stock on or about October
7, 1881, and a further assessment of one dollar

21

per share upon each and every share of said stock 61
on or about January 9, 1882, and that said assess-
ments amounted in all to the sum of $250,000, and
that said company caused and procured notices of
said several assessments to be published at and in
the City of New York and elsewhere, and printed
notices thereof to be sent to the stockholders of
record of said company; and except that this de-
fendant has no knowledge or information sufficient
to form a belief as to whether or not said printed
notices were sent to plaintiff or his alleged as-
signors, or any thereof; and except that this de-
fendant admits that in and by the several resolu-
tions under which said assessments were laid and
levied it was in substance provided that any stock 62
upon which the said several assessments should re-
main unpaid on a day therein named should be
delinquent, and should be advertised for sale at
public auction, and that unless payment should be
previously made said stock would be sold at the
office of the company at San Francisco, on a day
therein named, to pay the delinquent assessment,
together with the cost of advertising and the ex-
penses of the sale; and also admits tiiat thereunder
certain shares of the stock of the said company
were sold at or about the amount of the said several
assessments, and that certain of said shares so sold
were purchased by or on behalf of said Lounsbery
& Haggin and this defendant; and except that this 63
defendant has no knowledge or information suffi-
cient to form a belief as to whether or not plaintiff
or plaintiff^s alleged assignors or any of them paid
the amount of said several assessments, or any
part thereof, on any stock.

26. This defendant denies each and every alle-
gation of the 26th section or subdivision of the
complaint, except that he has no knowledge or in-
formation sufficient to form a belief as to whether
or not the defendants, Lounsbery k Haggin ane
Wells, Fargo & Co., or either or any of them madd

22

64 the, or either or any of the statements or rep-
resentations in said 26th section or subdivision of
the complaint alleged to have been made, or as to
what statements or representations, if any, said
defendants, Lounsbery & Haggin and Wells, Fargo
& Co., or either or any of them made relative to
the matters and things in said 26th section or sub-
division of the complaint set forth or alleged; and
except that he admits that at or about the time of
the levying of the said first assessment the indebt-
edness of the said Excelsior Company exceeded the
sum of $350,000; and except that he has no
knowledge or information sufficient to form a be-
lief as to whether or not any of the money received

65 under said first assessment was used to pay any
part of the bonded debt of said Company ; or as to
whether or not said money so received was applied
in whole or in part to the payment of certain or
any notes of said Company.

27. This defendant denies each and every alle-
gation of the 2Tth section or subdivision of the
complaint, except that he admits that the Board
of Trustees of said Excelsior Company, at a meet-
ing thereof held on or about November 11th,
1881, passed and adopted certain resolutions in
substantially the form set forth in folios 91 to 97
inclusive, of the complaint; and except that he

66 admits that in conformity with the said resolutions
the President and Secretary of said company did
make and deliver to the defendants, Lounsbery &
Haggin, the promissory note of said company for
$286,140.89 and that said promissory note was
substantially in the words and figures set forth
in folios 95 and 96 of the complaint, and that
thereupon the defendants, Lounsbery & Haggin,
or this defendant on their behalf, delivered to
said company its checks to the amount of
$201,088, and also fifty of the mortgage bonds
of said company, which had been redeemed by
said Lounsbery & Haggin on or about July

23

1st, 1880; and that there was included in 67
said note the sum of $35,052.89 or thereabouts,
for interest to said 11th day of November, 1881,
at the rate of nine per cent, per annum, compound-
ed monthly on the debt represented by said checks
and bonds; also that said Lounsbery & Haggin re-
ceived said note and retained the same until it was
subsequently delivered up to said company and
cancelled, as hereinafter set forth or admitted ; and
except that he admits that of the sundry sums of
money stated in the said first clause of said pre-
amble to have been advanced from time to time to
said Excelsior Company by said Lounsbery &
Haggin, and for which said company gave its.
checks on the Bank of California, certain parts were 68
the same moneys which were in part used and
paid out by said company in the payment of some
of the dividends hereinbefore mentioned.

28. This defendant denies each and every al-
legation of the 28th section or subdivision of the
complaint, except that he admits that on or about
February 28th, 1882, the Board of Trustees of said
Excelsior Company at a meeting thereof, held on
that day, duly passed and adopted certain resolu-
tions substantially in the form set forth in folios
101 to 107 inclusive, of said complaint; and except
that he admits that said company did thereafter

in conformity with said resolutions, make the 69
promissory notes in substantially the form set forth
in said resolutions, and did deliver the same to
said Lounsbery & Haggin ; and except that he
admits that said company did pay to the said
Lounsbery & Haggin, or to this defendant, on said
note last mentioned in said resoluion, certain sums
of money amounting in the aggregate, to wit, about
$

29. This defendant denies each and every alle-
gation of the 29th section or subdivision of the
complaint.

24

70 30. This defendant denies that he ever con-
spired with any person or persons for any purpose,
and especially denies that he conspired with any
or all of the persons described in the complaint for
any purpose, and especially denies that he con-
spired with any or all of the persons named in the
complaint, or with any other person or persons, for
any of the purposes alleged in the complaint.

31. This defendant denies each and every al-
legation of the complaint tending to charge or
charghig, or attempting or purporting to charge this
defendant with any fraud, and especially denies
that any act or statement of his concerning said

71 company or its property or its capital stock, was
false or fraudulent, or done or made with fraudu-
lent intent.

32. This defendant denies each and every alle-
gation of that portion of the complaint contained
on pages 38 and 39 thereof, except that he has no
knowledge or information sufficient to form a be-
lief as to whether or not at various times between
the 1st day of July, 1879, and the 31st day of
December 1880, or at any time Thomas B. Bow-
ring, mentioned in the complaint, purchased 675
shares of stock of said Excelsior Company,
or any other number of shares of said stock ; or

72 as to whether or not, said Bowring paid for any
of said stock various or any "sums of money
amounting in all to the sum of $12,000 or any
other sum; or as to whether or not said Bowring
paid, as assessments or otherwise upon any
stock purchased by him further sums to the
amount of $1,687.50, or any other amount; or
as to whether or not the amount by him paid out
in the purchase of any of the stock of said Excel-
sior Company, and in the payment of assessments
thereon was in all the sum of $13,687.50, or any
other sum ; or as to whether or not before the com-
mencement of this action, said Bowring by an in-

20

strument in writing or otherwise, or duly or other- 73
wise, sold, assigned, transferred or set, or delivered
over to the plaintiff herein, or to any other person,
all or any claims or causes of action against the
said defendants or any of them; or as to whether
or not the plaintiff is now the owner or holder of
any such claims or causes of action.

74

76

26

76 Second,

And for a further, separate and distinct de-
fense to the alleged cause of action
in said complaint contained, this defendant reasserts
and realleges all that he has hereinbefore alleged
in subdivisions 1 to 31 inclusive, of this answer
and further alleges:

32. This defendant denies each and every alle-
gation contained in the alleged cause
of action of said complaint, except that he has no
knowledge or information sufficient to form a be-
lief as to whether or not at any time or times
whatever the said

77 purchased or any shares of the stock of
said Excelsior Company; or as to whether or not
said paid for said or any of said stock
the sura of $ , or any other sum ; or as to
whether or not said paid as assess-
ments or otherwise upon any stock purchased by
him further sums to the amount of $ , or
any amount; or as to whether or not the amount
by said paid out in the purchase of any
of the stock of said Excelsior Company, and in
the payment of assessments thereon, was in all the
sum of $ , or any other sum ; or as to whether
or not, before the commencement of this action,
said by an instrument in writing, or

78 otherwise, duly, or otherwise, sold, assigned, trans-
ferred, or set, or delivered over to the plaintiff'
herein, or to any other person, all or any claims or
causes of action against the said defendants, or any
of them, or as to whether or not the plaintiff is now
the owner or holder of any such claims or causes
of action ; and except that he has no knowledge or
information sufficient to form a belief as to whether
or not said purchased any of said
stock from these defendants, or either or any of
them.

27

Third. 79

And for a further, separate and distinct de-
fense to the alleged cause of action
in said complaint contained, this defendant reasserts
and realleges all that he has hereinbefore alleged
in subdivisions 1 to 31 inclusive, of this answer
and further alleges:

32. This defendant denies each and every alle-
gation contained in the alleged cause
of action of said complaint, except that he has no
knowledge or information sufficient to form a be-
lief as to whether or not at any time or times
whatever the said

purchased or any shares of the stock of 80

said Excelsior Company; or as to whether or not
said paid for said or any of said stock

the sum of $ , or any other sum ; or as to

whether or not said paid as assess-

ments or otherwise upon any stock purchased by
him further sums to the amount of $ , or

any amount; or as to whether or not the amount
by said paid out in the purchase of any

of the stock of said Excelsior Company, and in
the payment of assessments thereon, was in all the
sum of $ , or any other sum ; or as to whether

or not, before the commencement of this action,
said by an instrument in writing, or

otherwise, duly, or otherwise, sold, assigned, trans- 81
ferred, or set, or delivered over to the plaintiff
herein, or to any other person, all or any claims or
causes of action against the said defendants, or any
of them, or as to whether or not the plaintiff is now
the owner or holder of any such claims or causes
of action; and except that he has no knowledge or
information sufficient to form a belief as to whether
or not said purchased any of said

stock from these defendants, or either or any of
them.

28

82 Fourth.

And for a further, separate, and distinct defense,
to each of the said

causes
of action in said complaint alleged, this defendant
reasserts and realleges all that he has hereinbefore
alleged, and further alleges upon his information
and belief, that on or about the 22d day of April,
1 878, and before any of the defendants herein had
any interest whatever in said Excelsior Water and
Mining Company, or any connection therewith,
Professor Thomas Price, who was and is an ex-
perienced and reputable and disinterested mining

83 engineer, examined the affairs and the properties
and mines of said Excelsior Water and Mining
Company, and made a report thereon to Louis A.
Garnett then interested in said company and prop-
erties, which report was soon thereafter printed,
and which contained a history of the past record
of said company and an estimate of its future
prospects, which report was concurred in by Wil-
liam Ashburner, an experienced and reputable
mining engineer who had long been familiar with
the said properties, and intimately acquainted with
the workings thereof, and which report stated that
the estimated amount of gold yet to be expected
from the ground owned by said company would

84 aggregate $1 8,400,000. And this defendant alleges
upon his information and belief, that said printed
report was thereupon given general circulation
by the said Garnett, in said City of New York,
Boston, and elsewhere; but he alleges that neither
such printing nor such circulation of said report
by the said Garnett was by, or through, or with
the co-operation or knowledge of these defendants
or any of them. And this defendant further
alleges on his information and belief, that thereaf-
ter, but before any of the defendants herein were
in anywise interested in said Excelsior Water and
Mining Company, and before they or any of them

29

had any knowledge or information concerning its 85
property or affairs, one J. C. Birdseye caused another
and further examination of the properties of said
Excelsior Company to be made by one Raphael
Pumpelly, who, as this defendant is informed and
believes, was and is an experienced and reputable
and disinterested mining engineer. That thereafter
and on or about the 11th day of November, 1878,
the said Raphael Pumpelly, in pursuance of such
employment, made his report in writing to the
said J. 0. Birdseye, which w^as subsequently printed,
and generally and publicly circulated by the said
Birdseye; but this defendant alleges that neither
such printing nor such circulation of said report
by the said Birdseye was by, or through, or with 86
the co-operation or knowledge of these defendants
or any of them; and he alleges on his information
and belief that said Birdseye so printed and circu-
lated said report for the purpose of inducing the
purchase of the stock of the said Excelsior Water
and Mining Company by various persons; and this
defendant alleges that after the printing and circu-
lation of the said report of the said Pumpelly, the
attention of this defendant was first called to
the said company and its properties, and that from
the said reports of Price, Ashburner and Pumpel-
ly, this defendant derived his first knowledge of
the properties of the said Excelsior Company.

This defendant alleges, on his information and 87
belief, that among other things stated by the said
Pumpelly in his said report, he stated that he
estimated the amount of gold yet to be obtained
from the properties of the said ccmipany at that
date to be $24,500,000, and stated that he estimated
the gross annual product of the properties of the
company from its bullion returns at an average of
$800,000, and also stated that independently of its
mining property, the company derived a revenue
of about $75,000 per annum, and that he estimated
the net annual income of the said company to be
$638,800, and also stated that there was little

30

88 doubt of the ability of said company to secure a
net income of $600,000 yearly, and further stated
that after the exhaustion of the compan3^'s gravel,
the water in its control could readily be sold for
mining or irrigation, or both, at not less than ten
cents an inch, which would give a net annual return
of about $180,000 for many years, and that even
after mining should cease, the water would bring
a revenue of over $100,000 yearly for irrigating
purposes, and further stated that he had only
heard favorable opinions among hydraulic miners
concerning said property.

This defendant further alleges, on his informa-
tion and belief, that subsequently to the making

89 and distribution of said report of Raphael Pum-
pelly, a statement was prepared by and under the
direction of the said J.C.Birdseye, but, as he alleges,
not by or through, or with the co-operation or
knowledge of these defendants, or any of them.
This defendant alleges, on his information and be-
lief that said statement was addressed '"to inves-
tors," and was printed, and referred to the exam-
ination of the property made by Rossiter W. Ray-
mond and his report thereon, and to the said reports
of said Price, Ashburner and Pumpelly; that said
statement designates itself as having been "made
at the expense and in the interest of parties de-
siring to invest,' ' and stated that it was proposed to

90 increase the capital stock of said Excelsior Com-
pany from 50,000 to 100,000 shares of $100 each,
and to list said stock on the New York and San
Francisco Stock Exchanges, with the transfer office,
and dividends payable in the former city: and
said statement also contained, among other things,
the following statements, viz:

" From considerations of a purely personal na-
'' ture, a limited number of shares of this stock is
'' offered for subscription at forty dollars per share,
" which, it will be perceived, is considerably below
'' the estimated value of the engineers, but the
•' important ends to be secured by a prompt sale

31

" justify the temporary sacrifice. An investment 91
" at such a price with the prospective stock divi-
" dend, and future advance in value of the stock
" under the large cash dividends, it is confidently
" believed, will prove one of the most remunera-
'• tive ever offered to the public."

This defendant further alleges on his informa-
tion and belief, that the said statement, after having
been printed, was generally and publicly circu-
lated, or caused to be circulated by the said
Birdseye, but he alleges that neither such print-
ing nor such circulation was by or through or with
the co-operation or knowledge of these defendants
or any of them; and he alleges on his information
and belief that said Birdseye so circulated or 92
caused to be circulated the said statement for the
purpose of inducing this defendant, among others,
to purchase the stock of the said Excelsior Com-
pany.

And this defendant alleges on his information
and belief that plaintiff and his alleged assignors
saw and read said reports and statements prior to
the time of their alleged purchases of said Excel-
sior stock, and that if they made said purchases,
they were induced to make them by the statements
and representations made by said reports and
statement, and by the said Birdseye, and not by
any acts, statements or representations of these
defendants or any of them. 93

That this defendant alleges on his information
and belief that contemporaneously with the prepar-
ation and distribution of said statement, and sub-
sequently thereto, the said Birdseye himself, and
through his agents and by means, among other
things, of the reports and statements hereinbefore
in this defense designated, endeavored to negotiate
a sale of the properties or stock of the said Excel-
sior Company to various persons, and that it was.
only during the progress, and by means of the
efforts of the said Birdseye so to negotiate the
sale of the properties or stock of the said company.

32

94 tlmt said company and its stock and properties
were first brought to the attention of this defend-
ant.

This defendant further alleges that thereafter,
and subsequent to the preparation and circulation
of the various reports, and the statement herein-
before referred to, and on or about the 25th day
of April, 1879, this defendant was invited by
others, not parties to this action, to purchase cer-
tain shares of said Excelsior stock.

That thereupon, and before making or agreeing
to make said purchase, this defendant employed
Louis Janin, a distinguished, disinterested, repu-
table and competent mining engineer and expert,

95 to make an independent examination of, and report
upon the properties, condition and affairs of the
said Excelsior Company.

That thereupon the said Janin examined the
said properties, condition and affairs of said com-
pany, and on or about the 16th day of May, 1879,
made his report thereon in writing, to which re-
port this defendant begs leave to refer, and of
which a copy is hereto attached, marked Exhibit
A, and made a part of this answer.

That in the said report the said Janin estimated
the value of the gravel on the said properties of
the said companies at $18,700,000, and the total
product of bullion per annum at $646,580, and

96 the yearly net profit of working the properties of
the company at $446,580, and in view of all the
contingencies he estimated the annual net profits of
the company to be $400,000, and the net revenue
of the company from other sources than mining
and after mining should have ceased, at $100,000
per annum, and estimated that the business of the
said company could be conducted at the profit
above set forth for a period of 25 years and per-
haps longer, after which there would be still left
to the company all of its property except the gold
producing portion of the property before set forth.

That this defendant further alleges that the

33

said reports of the said Price, Ashburner. Pumpelly 97
and Janin agreed in all substantial particulars in
their estimate of the value and income producing
capacity of the said properties of said Excelsior
Company, and agreed in estimating the total
value of the said properties to be upwards of
$18,000,000, and the average net earning capacity
of the same to be upwards of $400,000 yearl}^

That a copy of said report of said Pumpelly is
hereto attached, marked " Exhibit B," and made
a part of this answer.

And this defendant alleges that thereupon after
the receipt of the report of the said Janin, and re-
lying upon the statements of the said report of
said Janin, as well as of the said reports of the said 98
Price, Ashburner and Pumpelly, and upon the said
statement, addressed "to investors," and believ-
ing, and having good reason to believe in the ca-
pacity and the integrity of the said experts, Janin,
Price, Ashburner, and Pumpelly, and without any
further or other knowledge or information of the
condition, affairs or property of said compnny, this
defendant purchased from time to time sundry lots
of shares of the increased capital stock (of $10, 000,-
000) of the said Excelsior Company.

That before the purchase of said stock, or any
thereof, by this defendant, or any of the defend-
ants herein, the capital stock of the said company
had been already increased from 50,000 to 100,000 99
shares of $100 each, and that with such increase
neither this defendant nor either of the other de-
fendants herein had anything whatever to do.

That of the stock so purchased by this defend-
ant, a portion was sold by or through said defend-
ants composing the firm of Lounsbery & Haggin
to various persons, whose names are unknown to
this defendant, and a large portion, amounting to
several thousand shares, was owned and retained
by this defendant, and by the defendants Louns-
bery k Haggin, until after the month of March,
1882, prior to which time all the assessments al-

34

100 leged in the complaint had been levied and col-
lected.

That this defendant furnished to the defendants
Lounsbery & Haggin the reports and the statement
herein before designated; and that this defend-
ant, at the time of furnishing said reports and state-
ment to said Lounsbery & Haggin, believed said
reports and statement to be true, and believed the
property to be a good one, and worth far more than
the rate at which this defendant, or said Louns-
bery & Haggin, sold any of the stock of the said
Excelsior Company.

That the investigation made by this defendant
of the value of said property and the affairs of

101 said company, prior to said purchase of its said
stock, was as thorough, impartial, and competent
an investigation as could be made.

That no inducements were held out, or represen-
tations made by this defendant, or, as this defend-
ant alleges on his information and belief, by either
or any of the other defendants herein, for the pur-
pose of inducing any person or persons to buy said
stock. But that on the contrary thereof, as this de-
fendant alleges on his information and belief numer-
ous applications were voluntarily made to said
defendants, Lounsbery & Haggin, by proposing
purchasers of said stock, for the same, and that
numerous requests were made by said proposing

102 purchasers to the said Lounsbery & Haggin to sell
said stock to said proposing purchasers without
any representations whatever concerning the said
property or said company or said stock having been
made by this defendant or by said Lounsbery &
Haggin; and this defendant alleges on his informa-
tion and belief that no representations whatever
were made by the said Lounsber}^ & Haggin, or
either of them, concerning the said stock or said
properties, except in answer to inquiries of said
proposing purchasers, and that the only represen-
tations or statements then made by said Lounsbery
& Haggin, or either of them, were, that they (said

35

Lounsbery & Haggin) believed said report of Louis 103
Janin to be true, and believed said property to be
a good one, capable of paying dividends.

That in addition to the facts hereinabove alleged
which induced this defendant to believe that the
said reports and statement were true and correct,
and that the estimates therein contained were
reasonable and just, was the fact as this defendant
was and is informed and believes, that the Superin-
tendent of the properties of the said company,
and William Ashburner, the President of said
company, who were on the ground and personally
familiar with the said properties and their devel-
opments and the business and operations of the
said company, and who alone were in a position to 104
judge or who were capable of judging of the
actual production of the said mines at the times
mentioned in the said complaint, held and owned
very large amounts of the capital stock of the said
company, all of which during the times mentioned
in the complaint they could have sold at a price as
high as $29 per share, and for a large proportion
of which that price was offered said Superinten-
dent and said President, but that the said Superin-
tendent and said President vsold none of said stock,
and this defendant alleges on his imformation and
belief that they still hold and have not sold any
part of the said stock so held by them at the times
mentioned in the complaint; and further alleges 105
on his information and belief that during all said
times said President and Superintendent each held
a large number of said mortgage bonds of said
company.

And this defendant alleges on his information
and belief that during the fall and winter of
1879, extensive additions had been made, and were
in process of being made, to the working and pro-
ducing capacity of the property of the said com-
pany, such as extensive flumes, tunnels, and other
apparatus.

And this defendant alleges on his information

36

lOG and belief, that according to the usage and
practice of hydraulic miners in the district within
which the mines of said Excelsior Company are
" situated, and elsewhere, and as a measure of econ-
omj' in the operation of mines by the hydrau-
lic process, long intervals of time are permitted to
elapse between the regular periods of cleaning up
the flumes, sluices, and tunnels in which the gold
is deposited from the gravel and earth washed ; and
this defendant alleges, on his information and
belief, that the said Excelsior Company, acting
under the advice of competent and experienced
experts, and in accordance with said usage and
practice of hydraulic miners, and as a measure of

107 economy, permitted long intervals of time to elapse
between the regular periods of cleaning up its
flumes, sluices and tunnels, and collecting and
removing the gold deposited therein; and that
by reason thereof no final clean up of the
flumes, sluices and tunnels of said company was
made by said company from the month of July,
1879, until the month of September, 1880; that
said Excelsior Company wns advised by said ex-
perts that the amount of gold accumulated in said
tunnels, sluices and flumes could be calculated
with substantial accuracy from month to month,
according to the amount of water used, and the
quantity of gravel or earth washed, without mak-

108 ing such clean ups.

That the said company thereupon caused care-
ful estimates to be made by said experts of the
amount of gold accumulated, and to accumulate
from month to month in said tunnels, and there-
after for several months declared dividends, the
amount of which was based upon said expert cal-
culations and computations of the amount of gold
which had so accumulated in said flumes and tun-
nels, and of the net or surplus profit thereby accru-
ing to said company.

And this defendant alleges, on his information
and belief, that said calculations and computations

37

were conservative, and that the general experience 109
of hydraulic mining companies in the State of
California justified the said company in adopting the
calculations and computations as calculations and
computations of actual assets of the said company
on hand. - ^if0f'im

That the said calculations and con^g,^|HWmTS were
to the effect that a sufficient amount of gold had ac-
cumulated in said unopened and uncleaned flumes or
tunnels, between the said month of July, 1879,
and the said month of September, 1880, so as to
make the net or surplus profit of the said company
during said period the sum of $400,000 and up-
wards. That during the said period the said com-
pany paid out to its said stockholders, in dividends, HQ
the sum of $350,000, and that said dividends were
so paid in accordance with the general usage and
practice of hydraulic mining companies in the
State of California.

That the fact that the result of the clean-ups of
said flumes and tunnels about the month of Sep-
tember, 1880, was not as much as it had been cal-
culated to be by the company's experts, and not
any change in the actual or estimated values of
the properties of the said company, led to the ces-
sation of the payment of dividends on the com-
pany's stock.

That when the main flume or tunnel of said
company was cleaned up, in or about the month 111
of September, 1880, it was found that the accumu-
lations of gold therein had not been nearly as
large as they had been computed to be by the said
experts, and that the reason for the error in said
computation, which this defendant further alleges
on his information and belief could not have been
foreseen, was the fact that the bed-rock underlying
said main flume had so pitched or shifted as to
cause the rich goll -bearing gravel to fall below
the level of the tunnel through which it was being
worked.

That about the month of September, 1880, said

38

112 Lounsbery & Haggiii reported to such stockhold-
ers as they knew or could reach, the fact that the
said company proposed to cease paying dividends,
and so reported, as soon as that fact was known to
this defendant or to said Lounsbery & Haggin.

That at and during each and all of the times at
which all of the dividends hereinbefore mentioned
were declared and paid, this defendant and the
other trustees of said company were informed by
the superintendent of said company, and by ex-
perts and others who had the means of knowing
the facts, that the said mines and properties had
produced, and were producing large surplus profits;
and had accumulated, and were accumulating a

113 surplus more than sufficient for the payment of
said dividends. That this defendant and said
trustees had good reason to, and did rely on, and
believe said information, and that this defendant
is informed, and now believes that said informa-
tion was true and correct, and that each and all
of said dividends, and every part thereof were
paid out of the surplus profits of said company,
accumulated and earned from time to time, and
that no part of the capital, or capital stock, was
ever withdrawn, divided, distributed or paid out
in dividends.

This defendant alleges on his information and
belief, that in May, 1881. an injunction was granted

114 in proceedings brought in the courts of the State of
California and served on said company, which
said injunction had the practical effect of restrain-
ing the said company from working its mines.

That the fact of the pendency of the said injunc-
tion suit and the granting of said injunction was
widely and publicly known through reports in
public newspapers, and this defendant alleges on
his information and belief that the defendants,
composing the firm of Lounsber3' & Haggin, re-
ported the fact of said injunction suit and the
granting of said injunction to such of the stock-
holders of said company, as they knew or could

39

reach, as soon as this defendant, or said Lounsbery ] 15
& Haggin knew said facts.

That immediately after the annual meeting of
said company, on the 16th of March, 1881, and as
soon as the effect upon the affairs of the said com-
pany of the facts hereinabove set forth, could be
definitely ascertained, said compan}- made up its
balance sheet as of the date of March 16, 1881,
which said balance sheet is in the words and
figures following, to wit:

Excelsior Water and Mining Company.

1 1 *

balance sheet, march 16th. 1881.
Dr,

Water Eights & Ditches. . ..$1,022,811 18

Mining Claims and Plants. . 1,488,271 76

Enterprise Mining Co 25,068 13

Enterprise Mining Co. Stock 113,966 13

Pacific Powder Co 12,000 00

Union Ranch 7,200 00

Nevada County Lands 3,000 00

Hydraulic Miners' Ass'n .... 6,340 00

Branch Tunnel 52,607 34

Real Estate 17,273 41

Smartsville Water Works. . . 5,033 87

Excelsior Farm 50,494 06

Excelsior Farm Business... 7,051 70

Machinery Account 16,643 75

Pipe Shop 208 61 117

Ditch Account 3,946 92

Bio- Ravine Claim 462 05

Excelsior Claim 3,201 43

Smartsville Claim 662 05

Deer Creek Claim 14,020 94

Bills Receivable 68,701 69

Excelsior Store 39,516 51

Interest Account 1,678 97

Patent Expense 1,411 10

Contingent Expense 1,624 02

General Expense 1,779 11

Purchasing Agent 54 33

Coupon Account 3,750 00

$2,968,809 06

40

118 Or.

Capital Stock $2,383,398 62

Vulcan Powder Co. Stock.. 5,027 50

First Mortgage Bonds, in-
cluding $50,000 called in

but not paid 200,000 00

Excelsior House 56 30

Bills Payable 50,000 00

Water Sales 39,521 01

San Francisco Bills,(Powder) 12,587 50

Discount Account 627 86

Treasurer, Over-
draft at Bank. . $70,502 27
Advanced

by Lounsberj&

Haggin 207,088 00

TTO 277,590 27

J,968,809 06

And this defendant alleges on his information
and belief that many hundred copies of said bal-
ance sheet were printed, and that the defendants
Lounsbery & Haggin thereupon forthwith furnished
a copy of said balance sheet to every stockholder
of the said company whom they knew or could
reach.

That no assessments were made or levied upon
the stock of the said company until after the
printing and distribution of the said balance sheet,
and that qyqvj stockholder upon whose stock such
assessments were levied, knew, or had the means
120 of knowing, the exact condition of said company,
so far as its condition was known to itself at the
time when said assessments were levied and paid.

And this defendant alleges that so long as this
defendant was officially or otherwise connected
with said company, its affairs were in all respects
lawfully, honestly, openly and efficiently managed
in the interests of said corporation, its stockholders
and creditors.

And this defendant alleges on his information
and belief that within the last year past, one J. H.
BoUes, now the president of the said company,
has made a report to the stockholders thereof, to

41

the effect that notwithstanding the said injunction, 121
the properties of said company, as water properties
only, are worth as much money as a majority of
the said stockholders had paid for said stock in
said company, which estimate is a larger estimate
of the values of said properties as water properties
than that put upon them by the report and state-
ments before set forth. That said BoUes was
elected to his said office by the plaintiff, and his
alleged assignors among others, and that this de-
fendant is informed and believes that said Bolles
and Kelsey, hereinafter mentioned, now hold and
control as trustees 60,000 shares, constituting a .
majority of the capital stock of the said Excelsior
Company, and that a portion of the said 60,000 122
shares of stock is the stock alleged in the complaint
to be owned by the plaintiff and his alleged as-
signors, and that the statements of said report
were made by and with the knowledge, assent and
approval of plaintiff and his alleged assignors.

That the injunction suit above referred to, was
not finally decided against said company until at
or about the time of the commencement of the
above entitled suit, and that almost immediately
after the final decision of said injunction suit, the
above entitled suit was brought.

This defendant further alleges on his information
and belief, that during the autumn of 1883,
one Frederick W. Kelsey called upon the defend- 123
ant, Richard P. Lounsbery, and informed the said
Lounsbery that he had purchased some of the said
stock from said Louis A. Garnett, these defendants
and from other parties, strangers to this suit, and
that he demanded that the said Lounsbery & Hag-
gin and this defendant, should repay the said
Kelsey the cost to him of all his said stock, upon
the ground that they, the said Lounsbery & Haggin
and this defendant, had procured its sale by
fraud, and that upon the refusal of the said Louns-
bery to pay the said sum or any sum to the said
Kelsey in response to said demand, the said Kelsey

42

124 stated to the said Lounsbery and threatened that
unless the said amount of money was promptly
paid to him, he, the said Kelsey, would instigate
and induce a large number of the stockholders of
the said company to bring suits such as the above
entitled suit, and that he was able to and would
bring a great number of said suits, and that said
Kelsey then stated and threatened that it would
be better for said Lounsbery to make said so-called
settlement with said Kelsey privately, as he said
Kelsey had in his possession and under his control
all the evidence of the said alleged frauds of these
defendants, and intimated and offered that said
evidence would be suppressed if said so-called set-

125 tlement was made, but that otherwise he would
heap up suits against these defendants of an har-
rassing and annoying character, until they would
be sorry that they had not paid him said sum.
And this defendant further alleges on his informa-
tion and beUef that said Kelsey well knew at the
time of making said threats that none of these de-
fendants had committed any fraud whatever in
the premises, and that none of them owed him any
money, and that said threats were made by said
Kelsey for the purpose of extorting money from
these defendants, and that said threats were made
by and with the assent of the plaintiff' herein and
his alleged assignors as a part of the wrongful and

126 fraudulent conspiracy hereinafter set forth.

And this defendant alleges, on his information
and belief, that the said Kelsey and the plaintiff
herein, and the alleged assignors of the plaintiff
and others, have entered into a wrongful and fraud-
ulent conspiracy for the purpose of attempting to
extort money from these defendants, and to cheat
and defraud these defendsmts out of property by
making said threats, nnd by the falsely instituting
and maintaining of threatening suits, and by in-
citing, instigating and bringing groundless judicial
proceedings, similar to the suit above entitled, and
that the above entitled suit is brought as a part

43

of the said conspiracy, and is falsely insti- 127
tuted and maintained, solely for the purpose of
harassing and annoying and extorting inone}^ from
these defendants, and of attempting to cheat and
defraud these defendants out of property; and that
said Kelsey and others have brought or caused
to be brought another suit in this court against
these defendants, the allegations in the complaint
in said suit being identical with the allegations
in the complaint herein, except as to the names of
the plaintiff and his alleged assignors, and the num-
ber of shares of stock alleged to have been pur-
chased by them.

And this defendant alleges, on his information
and belief, that said last named suit is likewise 128
brought as a part of* said conspiracy, and is like-
wise falsely instituted and maintained, solely for
the purpose of harassing and annoying and extort-
ing money from these defendants, and of attempt-
ing to cheat and defraud these defendants out of
property.

Wherefore this defendant prays to be dismissed
hence with costs.

ALEXANDER & GREEN",

Attorneys for Defendant,
James B. Haggin.

129

44

130 State of California,

City and County of San Francisco, '' ^^'

James B. Haggin being duly sworn, says; that he
is one of the defendants named in the above enti-
tled suit; that he has heard read the foregoing an-
swer and knows the contents thereof, and that the
same is true of his own knowledge, except as to
the matters therein stated to be alleged on informa-
tion and belief, and that as to those matters he
believes it to be true.

131

Subscribed and sworn to before me this
day of May, A. D. 1884.

[Seal.]

Notary Public
in and for the City and County of San Francisco,
State of California.

132