Irwin v. West End Development Company

Decision Date17 August 1973
Docket NumberNo. 72-1755,72-1825.,72-1755
Citation481 F.2d 34
PartiesMarguerite IRWIN et al., Plaintiffs-Appellees, v. WEST END DEVELOPMENT COMPANY, a Colorado corporation, et al., Defendants-Appellants.
CourtU.S. Court of Appeals — Tenth Circuit

William J. Carney, Aspen, Colo. (J. D. Muller, Aspen, Colo., on the brief), for plaintiffs-appellees.

Frederic K. Conover, II, Denver, Colo., for defendants-appellants.

Before PICKETT, McWILLIAMS, and BARRETT, Circuit Judges.

BARRETT, Circuit Judge.

Roy Vroom appeals from the District Court's judgment, 342 F.Supp. 687, impressing a constructive trust in favor of the appellees on 30.76 shares of West End Development Company stock sold to him by the Taylors, together with the Order directing him to pay West End Development Company $15,048.75 of salary and $3,128.24 of interest which he was held to have wrongfully received. Vroom also appeals from the $5,000 attorneys' fees awarded appellees' counsel.

The appellees are four registered nurses who served in the U.S. Army Nurses' Corps and/or the Veterans' Administration. They were transferred every year or two to stations around the world. Some of them were stationed in Colorado at various times.

In 1957 Marguerite Irwin and Ada Rock, who is not a party to this suit inasmuch as she is now a resident of Colorado and has a similar suit pending in State court against Vroom, went to Aspen, Colorado, to inquire about purchasing a small lodge to operate after their retirement. They visited Vroom Realty. Roy Vroom interested them in joining in the purchase of 30 acres of undeveloped land just outside of Aspen for $45,000. One-half of the $18,000 down payment was tendered by Rock, Irwin and Lease, and the other half by Vroom Realty and Theodore Gordon. Lease, Irwin and Rock then held 20% interest, Vroom Realty, 40% and Gordon, 40%. Vroom Realty and Gordon sold 5% of their interests to Julia Crowley and Lois McCaleb, also registered nurses serving as the other appellees.

A syndicate agreement was entered into in late 1957.1 It was prepared by Vroom's attorneys, mailed to the nurses and executed by them. In 1963 the syndicate was abandoned and a Colorado corporation known as the West End Development Company was organized by Vroom at the suggestion of his attorneys in Aspen. The nurses consented to the incorporation; however, they were not sent copies of the Articles of Incorporation and, in fact, they did not see them until shortly before trial. Upon incorporation Vroom served as President, Treasurer and Chairman of the Board. Until 1968, the other two directors were Mr. Petre and Mr. Zimmerman, Vroom's attorneys. They also served as secretary and vice-president, respectively. After that time the Board consisted of Vroom and two of his employees. Prior to the closing of the purchase of the property, Vroom assigned 10% of his investment in the syndicate to Mr. and Mrs. Taylor for $10,000 for a loan the Taylors had made to him. He did not inform the other syndicate interest holders of this transaction. In 1958 the syndicate interests and investments were as follows:

                Total Interest Initial Cash
                in Syndicate Investment
                  Five Nurses         30%              $ 16,500
                  Gordon              35%                   750
                  Taylors             10%                10,000
                  Vroom               25%                 9,250
                

After incorporation, the stock was owned as follows:

                  Roy Vroom                       23.08  shares
                  Ann Taylor                      15.38  shares
                  Ewing Taylor                    15.38  shares
                  Marguerite Irwin                10.253 shares
                  June Lease                      10.253 shares
                  Ada Rock                        10.253 shares
                  Julia Crowley                    7.69  shares
                  Lois McCaleb                     7.69  shares
                

In 1961, Gordon, as a result of a partition, received ten acres of the land for his 35% interest in the syndicate.

In September, 1965, the Taylors sold their 30.76 shares to Vroom at $1,025 per share. That same year Vroom offered to buy the five nurses' stock for $600 per share. In 1966 and 1969 Vroom mailed the nurses financial statements reflecting his purchase of the Taylors' stock.

The land appreciated in value due to the development of the Buttermilk Ski Area nearby. Vroom continually requested the nurses to sell their stock at prices substantially lower than their known value; he did not disclose to the nurses the price he paid for the Taylors' stock; he did not state to them that he was personally interested in buying their shares; and he failed to disclose to them the price surrounding land was selling for. In 1968 a site across the street from the subject land sold for $15,000 per acre. At that valuation, attributable to the West End Development Company acreage, each share of stock would have been worth $3,000. That year Vroom stated in a letter to the nurses that they could sell their stock for $800 per share. It is conceded that Vroom is knowledgeable and experienced in land values, land development and land planning.

Vroom's alleged efforts to sell the land did not materialize. He decided to build a Swim and Racket Club in 1969. Although the shareholders did not consent to the construction of the tennis courts, Vroom proceeded with the construction based upon the approval of the project by the Board of Directors consisting of Vroom and two of his employees. The Board of Directors voted to accept Vroom's loan to the corporation of $39,216.91 with interest at the rate of 9% to construct the courts. Vroom wrote to the nurses about the construction plans. Miss Rock and Miss Irwin went to Aspen to consult with a lawyer. Vroom suggested that they contact the corporation's lawyer, Mr. Helmick. They did so and thereafter executed their powers of attorney relating to their stock to Mr. Helmick.

Also in 1969 Vroom and Powers, Secretary of the Board of Directors, authorized the corporation to borrow $75,000 from the Bank of Aspen to repay Vroom his loan plus interest and to pay a retroactive salary to Vroom of $15,000. Certain of the corporate property was mortgaged to secure the loan. At no time did Vroom inform the shareholders of the salary he had received from the corporation, of the Bank of Aspen's loan to the corporation, or of the interest paid to him. In 1969 the financial statement simply disclosed Vroom's loan to the corporation. The tennis courts lost money in 1970 and 1971.

Vroom contends that: (1) it was error for the trial court to impose a constructive trust on the 30.76 shares which he acquired from the Taylors because Article IV, Paragraph 6 of the Articles of Incorporation is not enforceable; (2) the provisions of Section 15 of the Uniform Stock Transfer Act barred the trial court's impression of a constructive trust; (3) the imposition of a constructive trust is barred by the statute of limitations and the doctrine of laches; (4) the trial court's application of estoppel was in error; (5) the constructive trust has been released by the expiration of 30 days from the date the judgment became final; (6) the trial court erred in granting judgment against Vroom for salary and interest paid to him; and (7) the trial court's award of attorneys' fees was in error.

I.

Vroom contends that the Court erred in impressing a constructive trust on his stock purchased from the Taylors because Article IV, Paragraph 6 of the Articles of Incorporation is not enforceable. It states:

No shareholder shall sell or transfer any outstanding shares of the capital stock issued by the corporation to such shareholder, excepting to the other shareholders, in the proportion which the number of shares owned by each bears to the total shares outstanding, without the prior consent of the owners or at least two-thirds (2/3) of the shares entitled to vote at the shareholders\' meeting . . .

Vroom alleges that the provision is unintelligible, unworkable, and too uncertain in its terms to be enforced or to give the appellees their pro-rata rights to the purchase of stock sold to Vroom by the Taylors. Substantially the same proviso was incorporated in the Syndicate Agreement. Vroom argues that it is also an unreasonable restraint on the alienation of the corporation stock.

The appellees did not seek to have the Articles of Incorporation specifically enforced, but rather to effectuate the intent of the Articles as a matter of equity in order to prevent fraud. The trial court did not enforce the Articles of Incorporation, but rather the fiduciary duty which the Court found Vroom owed the nurses. The law prohibits an absolute restriction against transferability, but if a restriction does not amount to an effective prohibition against transferability, then the test is reasonableness. Thus, a "first refusal" provision is valid in Colorado. Sterling Loan & Investment Co. v. Litel, 75 Colo. 34, 223 P. 753 (1924). The trial court recognized that the provision contained ambiguities but it construed them against the drafter and gave the provision a reasonable meaning according to Vroom's intent that the Articles should provide a workable and equitable result. The trial court stated that instead of stating "in proportion which the number of shares owned by each bears to the total shares outstanding", the draftsman meant to state, "in the proportion which the number of shares owned by each bears to the total shares not offered for sale." Vroom was, or should have been, well aware of the provisions contained in the Articles of Incorporation. He should have offered the Taylors' stock to the nurses on a pro-rata basis before purchasing it entirely for himself. The nurses were not aware of their right to purchase the Taylor stock until they saw the Articles in 1970. They relied on Vroom's judgment, honesty and fair dealing. Vroom owed a fiduciary duty to them. He breached this duty in not offering them their proportion of the Taylor stock. A constructive trust was...

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