American Timber & Trading Co. v. Niedermeyer

• Citation: 558 P.2d 1211,276 Or. 1135
• Parties: AMERICAN TIMBER & TRADING CO., Respondent, v. B. E. NIEDERMEYER, Jr., et al., Appellants. AMERICAN TIMBER & TRADING CO., Respondent-Cross-Appellant, v. B. E. NIEDERMEYER, Jr., and Elma Niedermeyer, Appellants-Cross-Respondents.
• Decision Date: 30 December 1976
• Court: Supreme Court of Oregon

Page 1211

558 P.2d 1211

276 Or. 1135

AMERICAN TIMBER & TRADING CO., Respondent, v. B. E. NIEDERMEYER, Jr., et al., Appellants.

AMERICAN TIMBER & TRADING CO., Respondent-Cross-Appellant, v. B. E. NIEDERMEYER, Jr., and Elma Niedermeyer,

Appellants-Cross-Respondents.

Supreme Court of Oregon.

Argued and Submitted Sept. 9, 1976.

Decided Dec. 30, 1976.

Thomas H. Tongue of Morrison, Dunn, Cohen, Miller & Carney, Portland, argued the cause and filed briefs for appellants/cross-respondents.

Bradley Littlefield, Portland, argued the cause for respondent/cross-appellant. With him on the briefs were Gerson F. Goldsmith, Portland, and Goldsmith, Siegel, Engel & Littlefield; and Henry A. Carey, Jr., Portland.

Before DENECKE, C.J., and McALLISTER, O'CONNELL, HOWELL, BRYSON and LENT, JJ.

HOWELL, Justice.

This appeal involves two suits which were consolidated for trial. In the first suit, the plaintiff corporation, American Timber & Trading Co. (AT&T), seeks an accounting for funds diverted from the plaintiff corporation to the defendant corporation, Vancouver Timber Investment Co. (VTI) by defendant Ben E. Niedermeyer (Ben), a former director and majority stockholder of plaintiff corporation. ¹ The second suit involves two separate causes of suit. One seeks an accounting for salaries, bonuses and 'expenses' recevied by Ben from AT&T without corporate authority. The expenses primarily involved improvements to various residences owned by Ben. The second cause of suit seeks rescission of an exchange agreement which transferred certain AT&T properties to Ben in exchange for Ben's interest in several related companies or, alternatively, an accounting of the profits Ben realized on the transfer. Ben, in turn, asserted defenses of ratification, estoppel and laches and filed a counterclaim seeking the recovery of additional sums due him under several contracts with AT&T which had been executed in connection with the exchange agreement.

The trial court found that Ben's organization of VTI in Canada was wrongful and resulted in siphoning off $150,585 in profits that rightfully belonged to AT&T and that these funds should be returned with interest. However, the trial court concluded that AT&T was estopped from seeking a recovery of a total of $226,789 in salaries received by Ben from 1963 to 1969. The court found that AT&T, 'by its acts and omissions, has acquiesced in and ratified salaries paid to B. E. Niedermeyer, Jr. and other officers and Directors.' The court also found that AT&T derived a benefit from the rental of two vacation homes (known as the Gearhart and Packwood properties) from Ben and his wife and that the rental payments and the improvements charged to AT&T were reasonable. The judge concluded that AT&T was 'estopped from bringing any claim for corporate waste as to the Gearhart and Packwood properties.' However, the court also found that AT&T's expenditure of $4,068 for remodeling Ben's home in 1968 was improper and unauthorized. The judge ruled that this expenditure constituted a waste of corporate assets and was a breach of Ben's fiduciary duties. The court decreed that AT&T should be reimbursed with interest.

The trial court also found that the transfer of corporate assets to Ben through the exchange agreement was without corporate authority. He also found that 'the taking of these assets was wrongful, constituted corporate waste and constituted a breach of the fiduciary duty of B. E. Niedermeyer, Jr. to AT&T and its stockholders.' The court further found that Ben's defenses of estoppel, waiver, ratification and laches had not been established by the evidence. The trial court concluded that Ben should account for all property received from the corporation under the exchange agreement. The decree imposed a constructive trust and ordered an accounting.

Finally, with respect to Ben's counterclaims on the non-competition agreement, the employment contract and the insurance agreement, the court found 'that the agreements upon which these claims are based were never submitted for the consideration of nor were they ever approved by AT&T's Board of Directors or stockholders.' Therefore, the court concluded that the agreements were 'null and void.' However, the judge ruled that Ben 'need not repay to the corporation those sums ($23,571) received under the purported agreements.' The court also found that AT&T should repay Ben $6,337.18 plus interest for amounts he paid as guarantor of AT&T's debts to a third party.

Both parties have appealed from those portions of the decree which were adverse to their positions. We review de novo; however, when the testimony is in conflict, we give great weight to the findings of the trial judge who viewed the witnesses and observed their demeanor. See, e.g., Stangier v. Stangier, 245 Or. 236, 238, 421 P.2d 693 (1966).

The trial of these suits lasted for six weeks and filled 17 volumes of transcript. There are literally hundreds of financial documents which have been included as exhibits. However, although some of the testimony was in conflict and although the parties frequently argue that different conclusions should be drawn from the same evidence, the basic facts are largely undisputed. The following is a summary of our review of the transcript and the exhibits.

Plaintiff corporation, AT&T, was incorporated in Oregon in 1948. The initial stockholders and directors were Ben and his two parents. The company engaged in various aspects of the lumber business as a subsidiary of Niedermeyer-Martin Co., which was also controlled by the Niedermeyer family. In 1963 a dispute arose between Ben and other members of the family, and Ben took over control of AT&T and had it separated from Niedermeyer-Martin. As part of the separation, certain other former Niedermeyer-Martin satellite companies which were controlled by Ben were merged into AT&T. Minority stockholders in these other companies became stockholders in AT&T. ² Thereafter, Ben controlled 66% Of the voting stock in AT&T, and he became the president and dominant force behind the company. In fact, the record shows that after Ben assumed control in 1963, corporate formalities which had formerly been followed were largely ignored, and Ben ran the company essentially as a one-man outfit.

Although the bylaws provided for three persons on the board of directors, Ben unilaterally increased it to five and appointed all its members without consulting the other shareholders, even though the amended bylaws provided for cumulative voting. The board of directors rarely met, and many of the meetings which are reflected in the corporation's minute book were never held. Salaries and bonuses for Ben and the other corporate officers were set by Ben, although the bylaws provided that officers were to receive 'only such compensation as determined by the Board of Directors.'

In 1966, AT&T had a contract with a Canadian supplier to purchase tent pole stock. After performance of the contract had started, Ben formed a Canadian corporation, Vancouver Timber Investment Co. (VTI), and substituted VTI for AT& T on the contract with the Canadian supplier. ³ He then secretly caused AT&T to purchase the tent pole stock through VTI, but the poles were shipped by the Canadian supplier directly to AT&T. The price paid to the Canadian supplier by VTI was substantially the same as under the original contract with AT&T, $130 per thousand board feet. However, Ben, through VTI, began charging AT&T $350 per thousand board feet. Although the price was later reduced to $175 per thousand, during the three years the contract was in force, these overcharges amounted to a total of $150,585. The effect of this manipulation was to secretly divert these funds from AT&T to VTI.

At about the same time, Ben caused AT&T to begin a pre-invoicing practice which involved the preparation of invoices for goods which had not yet been shipped. This resulted in overstating AT&T's accounts receivable without an offsetting decrease in inventory and this, in turn, allowed AT&T to obtain larger bank loans under its financing agreement with the First National Bank. Another effect of this accounting manipulation was to increase the apparent net worth and income of AT&T. In addition to this pre-invoicing practice, on at least one occasion Ben created invoices for fictitious sales. In 1968, Ben made up $200,000 worth of false invoices and put them up as collateral for a loan. This deception was discovered, however, and reported to the bank, and the entries were eventually reversed.

Beginning in about 1964, Ben began leasing to AT&T two vacation homes which he and his wife had owned for several years. The amount of rent paid by AT&T was $140 per month for one home and $250 per month for the other. AT&T also made various improvement and repairs on both properties and purchased furniture for the homes as well.

In October, 1967, Ben suffered a serious heart attack. As a result of his illness and at the insistence of his doctor, Ben began considering retirement and the disposal of his interest in AT&T and several of the related companies which he had formed over the years. Ben's brother, Walt, who was a director and vice-president of AT&T and who also had an interest in some of the related companies, was approached by Ben and his brother-in-law, Don Sullivan, who was also a director. Ben contended that AT&T and its related companies were worth about two million dollars, and that his own interest in these companies was worth $1,400,000. However, Walt did not have enough assets to buy out the interest claimed by Ben in all these companies, even after the First National Bank offered to make him a personal loan of $200,000, and another director, Duane Autzen, agreed to put up an additional $200,000 as an undisclosed principal. Ben then conceived the idea of transferring his interest in some of the related companies directly to AT&T in exchange for some of AT&T's assets. Eventually, a deal...