L. A. Young Spring & Wire Corp. v. Falls

• Citation: 11 N.W.2d 329,307 Mich. 69
• Decision Date: 11 October 1943
• Docket Number: No. 53.,53.
• Parties: L. A. YOUNG SPRING & WIRE CORPORATION v. FALLS et al.
• Court: Supreme Court of Michigan

307 Mich. 69

11 N.W.2d 329

L. A. YOUNG SPRING & WIRE CORPORATION

v.FALLS et al.

No. 53.

Supreme Court of Michigan.

Oct. 11, 1943.

Bill in equity by L. A. Young Spring & Wire Corporation, a Michigan corporation, against William A. Falls and others, to have defendants declared trustees ex maleficio of a certain sum and of certain patents, wherein the General Motors Corporation, a Delaware corporation, filed a cross-complaint. From a decree, the plaintiff and all defendants except Elizabeth Burch and Austin G. Van Hove, cross-appeal.

Decree except as it relates to defendant Austin Van Hove set aside, and a decree entered in accordance with opinion.Appeal from Circuit Court, Wayne County, in Chancery; Guy A. Miller, judge.

Before the Entire Bench, except BUTZEL, J.

Cook, Smith, Jacobs & Beake, of Detroit, for appellant.

John P. O'Hara and Austin G. Van Hove, both of Detroit, for appellants William A. Falls, Desire H. Van Hove, Thomas Mahoney and Newton E. Shockey.

Jay F. McMullen and Nelson S. Shapero, both of Detroit, for appellant Ruppert's Estate.

Henry M. Hogan, of Detroit (Jacob A. Tolonen, of Detroit, of counsel), for defendant cross-appellant and cross-plaintiff.

STARR, Justice.

Our former decision in this case (L. A. Young Spring & Wire Corp. v. Falls, 293 Mich. 602, 292 N.W. 498) should be reviewed prefatory to this opinion. In October, 1938, plaintiff filed bill of complaint against the above-named defendants for an accounting and to hold all defendants, except General Motors Corporation, as trustees ex maleficio of certain patents and the royalty proceeds therefrom. On motion the trial court dismissed plaintiff's bill and also General Motors' cross bill on the ground that as the suit involved the issuance and ownership of patents, the State court did not have jurisdiction. On appeal we determined that as plaintiff's bill ‘only incidentally asserts a right under the patent law,’ the State court had jurisdiction. The order of dismissal was reversed and the case remanded for further proceedings.

Following the trial, which extended over a period of two months or more, the trial court entered decree dismissing plaintiff's bill and amended bills against all defendants and dismissing General Motors' cross bills against defendants Elizabeth Burch and Austin G. Van Hove. The decree determined that cross-plaintiff General Motors should recover the sum of $92,808 from defendants Mahoney, Falls, Shockey, Desire H. Van Hove, and Mabel C. Ruppert, administratix, or any of them. Such award to General Motors represented the difference between patent royalties of $181,210.28 which it had paid to one Fred Burch and defendant Elizabeth Burch, as trustees for themselves and other individual defendants, and sublicense royalties of $88,402.28 which it had collected from plaintiff and other sublicensees of the patents involved. The decree did not provide for interest on the award to General Motors. Plaintiff appeals, and all defendants except Elizabeth Burch and Austin G. Van Hove cross-appeal from such decree. This being a chancery case, we consider the same de novo.

Plaintiff and its predecessor companies, with main offices and factory in Detroit and branch factories in Oakland, California, and other cities, have been engaged in the manufacture of automobile cushion springs and other spring and wire products for more than 25 years. Defendant General Motors Corporation is engaged in the manufacture of automobiles, the bodies for which are manufactured by its so-called Fisher Body division. During the occurrence of the principal transactions involved in this suit, defendants Mahoney, Falls, Shockey, and Desire Van Hove, herein referred to as ‘defendant executives,’ all held high-salaried executive positions of trust and confidence with plaintiff corporation. Defendant Mahoney was a director, vice-president, and general manager for 10 years or more prior to his resignation in August, 1932. His nephew, defendant Falls, was a director and assistant manager and for about three years prior to his resignation in 1935 was vice-president and general manager. Defendant Shockey was factory manager of plaintiff's Detroit plant, and for several years prior to his leaving in 1935 he was also assistant general manager. Defendant Desire Van Hove was employed in plaintiff's sales department from 1923 until about October, 1934, and supervised the construction of samples and did experimental and development work. Much of this was in connection with plaintiff's business with General Motors, and he was in close contact with Albert A. Ruppert, its trim engineer. Other than its president, L. A. Young, the four defendant executives were the principal officers and executives of plaintiff corporation. During the time of the transactions in question they individually received salaries and bonuses from plaintiff ranging from about $10,000 to about $38,000 a year.

Fred Burch, who the individual defendants claim invented and patented the spring constructions for cushion seats and backs involved in the present case, was a brother-in-law of defendant Desire Van Hove, and he acted as trustee for the interests of himself, said Albert Ruppert, and the defendant executives in such patents and the royalties therefrom. Burch died in January, 1935, and he was succeeded by his wife, defendant Elizabeth Burch, as assignee and successor trustee, in connection with such patents and royalties. After Burch died, his nephew, defendant Austin G. Van Hove, the son of defendant Desire Van Hove, assited said Elizabeth Burch, trustee, in connection with the distribution and payment of the royalty proceeds from the Burch patents. All cushion springs and upholstery purchased by the Fisher Body division of General Motors were subject to the approval of Ruppert, its trim engineer. A vice-president of General Motors testified that ‘during the time Mr. Ruppert was employed as trim engineer, the Fisher Body Company never adopted any cushion springs without his approval.’ Ruppert died in May, 1938, and his administratrix, Mabel C. Ruppert, was made a party defendant in the present case. For brevity we refer to defendants Elizabeth Burch, Mabel Ruppert, administratrix, Austin G. Van Hove, and the four defendant executives as the ‘individual defendants.’

It is unnecessary to reiterate in detail the allegations of plaintiff's bill and amendments and of defendant General Motors' cross bill and amendments, as the same are set forth in our former decision in this case. Suffice it to say in summary that plaintiff charged that defendant executives, in breach of their duties as trusted officers and employees, ‘fraudulently, maliciously and intentionally conspired’ among themselves and with said Fred Burch and Albert Ruppert to deprive it of certain inventions in spring constructions for seat and back cushions and to convert and misappropriate such inventions to their own benefit by using said Burch as the pretended inventor; that Burch obtained patents for such inventions and granted manufacturing licenses thereunder to defendant General Motors; and that Burch and defendant Elizabeth Burch as trustees collected royalties of approximately $181,000 from General Motors and divided such royalties between the defendant executives, Ruppert and his estate, and Burch and defendant Elizabeth Burch. Plaintiff also alleged, in general, that it was the duty of defendant executives as trusted officers and employees to disclose and make known to plaintiff all designs, improvements, and inventions pertaining to its spring manufacturing business and not to appropriate and convert any such designs, improvements or inventions to their own use and benefit. Plaintiff prayed that it be decreed to be the owner of the Burch patents and royalty proceeds therefrom; that the individual defendants be decreed to be trustees ex maleficio of the Burch patents and royalties for the use and benefit of plaintiff; and that the individual defendants and General Motors account for all royalties in connection with such patents and license and sublicense agreements.

Defendant executives answered, admitting the alleged agreement with Fred Burch and that they each received a share of the royalties paid by General Motors to Burch and his wife as trustees. They denied the charge of fraud and conspiracy and that plaintiff had any interest in the Burch patents and royalties. Defendants Elizabeth Burch and Mabel Ruppert, administratrix, answered, admitting the payment of royalties by General Motors and the division thereof, but denying plaintiff's right to the relief sought. General Motors answered, admitting the royalty agreements with Burch, the payment of royalties to Burch and wife as trustees, the granting of sublicenses under the Burch patents, and the collection of sublicense royalties in the amount of about $88,000, of which about $54,000 were collected from plaintiff. General Motors also admitted the alleged fraud and conspiracy between its trim engineer Ruppert, the defendant executives, and Burch and in its cross bill alleged that by reason of such fraud and conspiracy the individual defendants became trustees ex maleficio for its benefit as to all royalties it had paid of Burch and wife as trustees. It denied plaintiff's right to recover; and prayed that its royalty license agreements with Burch be canceled and for an accounting by plaintiff and by the individual defendants.

The record is voluminous, but we shall discuss only that testimony material to the issues involved. George Stackhouse, a designer and inventor employed in plaintiff's Oakland, California, plant, testified that during or prior to 1927 he conceived the idea of an improvement in spring construction, which was usable in the manufacture of mattresses and automobile cushions; that in the spring of 1927 he explained and demonstrated such idea to plaintiff's generalmanager, defendant Mahoney; that about July, 1928, he made a sample model of...