Clark & Wilson Lumber Co. v. McAllister

• Decision Date: 14 February 1939
• Docket Number: No. 8830.,8830.
• Citation: 101 F.2d 709
• Parties: CLARK & WILSON LUMBER CO. OF DELAWARE v. McALLISTER.
• Court: U.S. Court of Appeals — Ninth Circuit

101 F.2d 709 (1939)

CLARK & WILSON LUMBER CO. OF DELAWARE v. McALLISTER.

No. 8830.

Circuit Court of Appeals, Ninth Circuit.

February 14, 1939.

COPYRIGHT MATERIAL OMITTED

Charles A. Hart, of Portland, Or. (Carey, Hart, Spencer & McCulloch, of Portland, Or., of counsel), for Clark & Wilson Lumber Co.

Sidney Teiser and Teiser & Keller, all of Portland, Or., for S. A. McAllister, receiver.

Before DENMAN, MATHEWS, and HEALY, Circuit Judges.

HEALY, Circuit Judge.

As receiver of Nehalem Timber & Logging Company, an Oregon corporation (hereafter called Nehalem), S. A. McAllister, a citizen of Oregon (hereafter called plaintiff), brought this action against Clark & Wilson Lumber Company of Delaware, a Delaware corporation (hereafter called defendant), to recover damages in the sum of $510,000, with interest, for alleged conversions of shares of defendant's capital stock belonging to Nehalem. From a judgment in plaintiff's favor for $145,000, with interest, both parties have appealed.

Nehalem was organized in 1905 and, until 1927, was engaged in the timber and logging business in Oregon. It was one of a group of six affiliated corporations (hereafter called the Nehalem group) of which, at all pertinent times, Henry Turrish was the executive head and largest individual stockholder. Turrish was president and A. J. Keith was secretary and treasurer of Nehalem. Both were members of its board of directors.¹

In 1927 the Nehalem group of corporations conveyed their property and assets to defendant in exchange for 50,000 shares of defendant's capital stock,² of which Nehalem received, for its property and assets, 17,735 shares. Thereafter, between March 3, 1928, and February 18, 1931, Turrish caused 3,400 of these shares to be transferred on defendant's books and new certificates therefor to be issued by defendant, as follows: To Turrish himself, 1,850 shares; to his wife, Minnie L. Turrish, 250 shares; to A. J. Keith, 525 shares; and to A. J. Keith's brother, T. B. Keith, 775 shares. The transfers were procured by surrendering to defendant stock certificates theretofore issued to Nehalem, each certificate having endorsed on it an assignment executed in the name of Nehalem by Turrish as its president.

On September 28, 1933, plaintiff was appointed receiver of Nehalem and on March 3, 1934 commenced this action, alleging that the transfers to the Turrishes and Keiths were unauthorized; that defendant, in making and permitting the transfers, had converted the 3,400 shares to its own use; and that Nehalem was thereby damaged in a sum equal to the market value of the shares, which, plaintiff alleged, was $510,000. Answering, defendants denied that the transfers were unauthorized, alleged that they were duly authorized, and denied that the shares had been converted.

By stipulation of the parties, jury trial was waived, and pursuant to Oregon Code, 1930, §§ 2-601 to 2-609,³ the issues were referred to a referee, who, after hearing the case, filed his report and, with it, the evidence taken by him at such hearing. Thereafter, the case came on for trial by the court and was submitted to the court on the evidence taken by the referee. Plaintiff requested the court to find that Turrish had no authority to make any of the transfers in question. This request was denied, and plaintiff excepted. Defendant requested the court (1) to find as a fact, and to hold as a matter of law, that Turrish had authority to make all the transfers, and that none of them constituted a conversion, and (2) to enter a judgment in its favor. These requests were denied, and defendant excepted. The court made findings of fact reading, in part, as follows:⁴

"(3) Turrish was the largest individual stockholder in the Nehalem group of companies; he was also the executive head of each of them and by the consent or acquiescence of the other stockholders exercised managerial authority over all of the affiliated companies and controlled their policies. * * * The General Manager of the Nehalem took his directions from Turrish * * *. For many years prior to the merger of 1927, meetings of the stockholders and of the board of directors of the Nehalem were held infrequently from time to time when it became necessary to take formal corporate action in transactions wherein the submission of corporate minutes or resolutions was required by other interested parties. But, aside from these occasions, there were few meetings of the board of directors of the Nehalem during a long period of premerger years when the Nehalem was transacting a gross business in the neighborhood of a million dollars a year * * *. By consent and acquiescence of the stockholders and directors of the Nehalem during those years, Turrish actually exercised, in the general administration of the affairs of the Nehalem, substantially the whole of the power vested in its board of directors. This exercise of authority by Turrish was never questioned by any Nehalem stockholder or director so long as Nehalem was a going concern."

"(7) After the merger, the Nehalem Company ceased its logging operations and related activities and held no assets of any consequence except its Delaware stock.⁵ The Nehalem had some indebtedness to pay, certain adjustments to be made arising out of the merger and other contracts, and some related and incidental matters to be taken care of looking toward the winding up of its affairs. Such business as was transacted by it during that period was directed and handled by Turrish. No recorded meeting of either the stockholders or the directors of the Nehalem was held between December 16, 1927 and February 18, 1931. It was during this period that the stock transfers in question took place."

"(9) * * * During that same period of time, a substantial number of other transfers, not directly involved here, were made. The record does not show that any director or stockholder of the Nehalem company ever questioned any of the transfers mentioned (meaning both those which are the subject of this action and those that are not) until more than a year after February 18, 1931, the date of the last transfer involved here. A considerable proportion of those transfers, if not all of them, were made on the authority of Turrish's endorsement, although none of them were authorized by resolution or other formal action of the board of directors."

"(12) Through continuous, unchallenged and open exercise by Turrish of control of the Nehalem's operations and business with the acquiescence of the Nehalem's directors and stockholders, Turrish was clothed with authority to dispose of the personal property of the Nehalem, including its Delaware stock, in the ordinary course of handling the Nehalem's business and affairs. The transfer of stock to Turrish, to Turrish's wife, or to A. J. Keith, was not a transfer of personal property of the Nehalem in the ordinary course of handling the Nehalem's business and affairs. Further, Turrish had no actual or apparent authority, by express designation or otherwise, to transfer stock or any other Nehalem property to himself, or for his benefit, to his wife, or for her benefit, or to A. J. Keith, or for his benefit."

The court concluded that the transfers to T. B. Keith did not constitute conversions by defendant, but that the transfers to the Turrishes and A. J. Keith did constitute such conversions, and, having found that the shares so transferred had a value of $145,000, gave plaintiff a judgment for that amount, with interest. These appeals followed.

On plaintiff's appeal, the question is whether the evidence warranted a finding that Turrish had authority, actual or ostensible, to make the transfers to T. B. Keith. On defendant's appeal, the question is whether the evidence required a finding that Turrish had authority to make the transfers to himself, his wife and A. J. Keith.

A preliminary question is involved. Defendant says there is no evidence that the shares were misappropriated by the Turrishes or Keiths, or that, apart from the question of Turrish's authority, the challenged transfers were in any respect wrongful or improper. It is true no witness so testified, but defendant's counsel at the hearing before the referee made an opening statement which cannot be read otherwise than as a concession that the transfers to these persons were in fact misappropriations of Nehalem's property. The admission is binding on defendant. Oscanyan v. Winchester Repeating Arms Co., 103 U.S. 261, 263, 26 L.Ed. 539; Harniska v. Dolph, 9 Cir., 133 F. 158, 159.

The court found that, through long acquiescence, Turrish was clothed with authority to dispose of Nehalem's personal property, including the stock in question, in the ordinary course of handling the Nehalem's business and affairs. This and the further finding that the transfers to Turrish and his wife, and to A. J. Keith, were not authorized, and were not transfers in the ordinary course, are supported by the evidence. It is the rule in Oregon⁶ that contracts entered into by corporate directors with themselves as individuals are voidable at the option of the corporation or the stockholders. In Stanley v. Luse, 36 Or. 25, 32, 58 P. 75, 77, where the acquisition of corporate property by a director was set aside, it was said: "The relation which a director sustains towards the corporation he represents is well understood. His position is of a fiduciary character, and his relationship is that of a quasi trustee. Hence it is sometimes asserted that as an individual he cannot deal with the board of directors or trustees of which he is a member; or, in other words, he cannot deal in such a capacity with the corporation of which he is a trustee. Giving the doctrine its broadest scope, it is said: `A person cannot legally purchase on his own account that which his duty or trust requires him to sell on account of another, nor purchase on account of another that which he sells on his own account;' and `especially is this the...