Holden v. Construction Machinery Co.

Decision Date15 November 1972
Docket NumberNo. 55059,55059
Citation202 N.W.2d 348
PartiesHerle H. HOLDEN, individually and as a shareholder of Construction Machinery Company, suing in behalf of himself and all shareholders of said corporation and for the benefit of said corporation, Appellee and Cross-Appellant, v. CONSTRUCTION MACHINERY COMPANY et al., Appellants and Cross-Appellees.
CourtIowa Supreme Court

James L. Perkins, of Winston, Strawn, Smith & Patterson, Chicago, Ill., and Wirt P. Hoxie of Hoxie & Teske, Waterloo, for appellants, cross-appellees.

Robert C. Tilden and William H. Carmichael, of Simmons, Perrine, Albright & Ellwood, Cedar Rapids, and T. G. Garfield, Ames, for appellee, cross-appellant.

Heard before and determined by the full bench.

RAWLINGS, Justice.

This is an equity action in five divisions by Herle H. Holden (Herle), owner of 49.976 percent of outstanding stock in Construction Machinery Company (CMC) against his brother Warren A. Holden (Warren), holder of 50.024 percent, and other corporate officers involving management-control of the corporation. CMC is made a nominal defendant.

Division I of Herle's petition asserts a derivative cause, alleging that April 4, 1964, Warren as jpresident and major shareholder, fraudulently induced CMC to sell him 8000 shares (originally 2000, but later twice split two for one) of Chamberlain Manufacturing Corporation (Chamberlain) stock at a price substantially below fair market value. Trial court held for Herle on this issue but denied an award of punitive damages.

Division II is not instantly involved.

Division III alleges a personal cause predicated on an oral agreement with Warren, acting on behalf of CMC, to the effect Herle would have corporate employment equal in duration and compensation, both as to salary and bonuses, with Warren. Remedially Herle seeks specific performance and equalication of past compensation by requiring CMC to pay him the additional sum equal to that received by Warren. Trial court held for Herle on this issue and in so doing granted him the right to a conditional annual judgment.

Division IV asserts, as an alternative to Division III, the same cause foundationed, however, upon an individually binding shareholder's agreement. Trial court did not adopt this concept.

Division V asserts Warren wrongfully caused Herle to be 'frozen' out of the corporation by harassing and demeaning him, depriving him of a fair return on his investment, denying him employment with or a voice in corporate management, and removing him from corporate office. Trial court, finding merit in these allegations, granted injunctive relief but refused to appoint a 'fiscal agent' or receiver.

As indicated above trial court held, in large part, adverse to defendants and they appeal. Plaintiff cross-appeals. We affirm on defendants' appeal, but reverse in part, affirm in part, and affirm in part as modified on plaintiff's cross-appeal.

An understanding of the issues involved compels this prefatory general statement of facts, as best determinable from an unavoidably extensive and intricate record:

CMC is a Waterloo-based corporation engaged primarily in the manufacture of tools and equipment for concrete and construction industries. About 1936, L. S. Holden became the sole owner of CMC. He and his first wife, now Mrs. Leona Hansen, had three children, Herle, Warren and a younger daughter, Mrs. Melva Davey. During the years pertinent to this lawsuit and until his death, July 3, 1955, L. S. Holden was married to Carmen Holden. Except for the last few months of his life L. S. Holden ran the business, but gradually accorded Warren more authority in the management area.

During his lifetime L. S. Holden made substantial gifts of CMC stock to his three children. The father also engineered a series of transactions by which Herle and Warren acquired additional stock from other family shareholders. Resultantly, at time of the father's death July 3, 1955, he possessed 544 shares, Herle and Warren each then owning 2028 shares.

Within a few days after L. S. Holden's demise the contents of his will became known. To the extent here relevant it bequeathed 25 percent of his stock in CMC to Herle, 75 percent to Warren.

Herle testified he was extremely disappointed upon learning his father's will gave majority control of CMC to Warren. There followed several months of frequent discussions between the brothers during which Herle vainly explored possible courses which would make him an equal stockholder with Warren. The latter remained firm in his resolution not to relinquish control. The problem was compounded by the fact that Carmen elected to take her statutory dower interest in the estate instead of the share provided under terms of the will. This meant, among other things, if her dower interest was to be monetarily satisfied some method must be employed which would make cash available to the estate for that purpose.

Although no comprehensive agreement between all of the interested parties was ever reduced to writing, it is evident an accord was reached. Melva received $42,510, Warren $26,924.73, and Carmen $56,060.66. Furthermore, 540 shares of CMC stock were passed by the estate to Carmen, which she then transferred to CMC in consideration of its agreement to pay her a total of $93,484.80 in five equal payments. The $26,924.73 check to Warren was apparently an adjustment for the fact that since the will left him with 272 shares more than Herle, an agreement had been reached which retired 540 shares. Consequently, Warren held 2031 shares, Herle 2029 shares.

Herle testified all of this was resolved between himself and Warran during a discussion early in 1956. That under this agreement (1) Herle consented to the arrangement giving Warren 'control' of CMC; (2) Herle promised to keep all of his CMC stock, fulfill his contractual commitments to Carmen and Melva, and remain in CMC's employ; (3) Warren agreed in return that both of them would have employment with CMC of equal duration, and their compensation, salaries and bonuses, would always be the same. Warren denies any discussion regarding duration of employment or equal recompense.

After the father's death Warren became president of CMC and continued as general manager. Herle remained vice-president in charge of manufacturing. From 1955 through 1963 they received equal remuneration. There appears, however, to have been a noticeable deterioration in their relationship during that period of time.

In December 1960, the board of directors had been expanded to include five key employees, along with Warren and Herle. Active monthly meetings followed for a period of time. This regularity was discontinued by Warren not long after the board out-voted him regarding expansion of research and development facilities. Abandonment of the regular board meeting program served to deprive Herle of an appropriate forum in which he could, and often did, take issue with Warren.

In early 1964, CMC engaged Batten & Associates (Batten), a management consultant organization, to effect a survey of CMC's operations. Joe McBride was then working for Batten. The first report of that study (Batten I) was submitted April 22, 1964. Based upon problems there disclosed a second study was suggested and undertaken in mid-1964 primarily to (1) evaluate management personnel by tests and interviews, and (2) propose a plan of organization. Batten II was made available August 27, 1964. One of the major recommendations there advanced was that manufacturing be placed directly under Warren rather than Herle as in the past. It also suggested Herle retain responsibility only in the areas of purchasing and design engineering. In any event, the organizational formula proposed in Batten II was never followed. Warren shortly announced a plan putting Herle in charge of engineering only, with production, purchasing, industrial engineering, research and development being under Warren's control. The result was a further deterioration of the brothers' relationship.

Near the end of 1964, Warren paid himself a supplemental bonus of $1500 which Herle did not receive. When salaries were fixed for 1965, Warren got a $50 per month increase but Herle's pay remained at the 1964 level.

The latter became aware of the bonus and salary differential sometime after the first of the year 1965, and in March or April contacted Mr. Beecher, a Waterloo attorney, seeking advice concerning violation of his claimed equal compensation agreement, the Chamberlain deal, and other related problems. Beecher realized Herle's very substantial estate was 'locked' in the minority interest of a closely held family corporation. A series of meetings followed among Warren, Herle and their respective attorneys. Mr. Beecher asserted Herle's claimed violation of an equal compensation agreement. Counsels' efforts were directed, however, toward possible solution of the larger overall problems. The relationship between Warren and Herle had then seriously deteriorated and they were communicating almost entirely through their attorneys and by memos passed or placed on the other's desk.

In June 1965, Joe McBride was hired as vice-president of operations, a position comparable to that held by Herle prior to Batten II. Herle was replaced as head of engineering and given the title vice-president in charge of corporate development with no management authority. Being no longer involved in operations he was not participating in meetings and discussions relative to CMC's operations, but continued to report for work regularly and attended those board meetings irregularly held.

In the spring of 1966 Herle was relieved of all duties and advised, to the effect, a Stock Purchase Agreement which existed between him and CMC was being cancelled, as were life insurance policies on Herle's life, owned by CMC. Although then also told his salary was being reduced, this did not actually occur until...

To continue reading

Request your trial
77 cases
  • Beeck v. Aquaslide 'N' Dive Corp.
    • United States
    • United States State Supreme Court of Iowa
    • 16 Mayo 1984
    ...1981). The exception must be proven by clear and convincing evidence. DeWall, 224 N.W.2d at 431 (citing Holden v. Construction Machinery Co., 202 N.W.2d 348, 355-56 (Iowa 1972); Holsteen v. Thompson, 169 N.W.2d 554, 558 (Iowa 1969). Aquaslide argues it established its estoppel argument by p......
  • Black v. Gardner
    • United States
    • Supreme Court of South Dakota
    • 2 Junio 1982
    ...v. Rogers, 240 Ga. 228, 239 S.E.2d 795 (1977); Hedworth v. Chapman, 135 Ind.App. 129, 192 N.E.2d 649 (1963); Holden v. Construction Machinery Company, 202 N.W.2d 348 (Iowa 1972); Tahoe Village Realty v. DeSmet, 590 P.2d 1158 (Nev.1979); I.H.P. Corp. v. 210 Central Park South Corp., 12 N.Y.2......
  • Masinter v. WEBCO Co., 14349
    • United States
    • Supreme Court of West Virginia
    • 29 Enero 1980
    ...Petrick v. B-K Dynamics, Inc., 283 A.2d 696 (Del.Ch.1971); Keck v. Schumacher, 198 So.2d 39 (Fla.App.1967); Holden v. Construction Machinery Co., 202 N.W.2d 348 (Iowa 1972); Ruetz v. Topping, 453 S.W.2d 624 (Mo.App.1970); Baker v. Commercial Body Builders, Inc., 264 Or. 614, 507 P.2d 387 Th......
  • Lussier v. Mau-Van Development, Inc.
    • United States
    • Court of Appeals of Hawai'i
    • 21 Julio 1983
    ...legally protected right has been invaded, such as an intentional act of fraud or other wrongful conduct." Holden v. Construction Machinery Co., 202 N.W.2d 348, 359 (Iowa 1972). The court has stressed that punitive damages in derivative actions "are not allowed as a matter of right" but "are......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT