Braunstein v. Devine
| Decision Date | 18 April 1958 |
| Citation | 337 Mass. 408,149 N.E.2d 628 |
| Parties | Eugene BRAUNSTEIN v. Theodore J. DEVINE et al. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Thomas F. McGuire, Fall River, for plaintiff.
Richard K. Martin, Taunton, for defendants.
Before WILKINS, C. J., and SPALDING, WILLIAMS, COUNIHAN and WHITTEMORE, JJ.
This is a suit by a minority stockholder of National Glass Company, Inc., hereinafter referred to as National, in which the corporation and its three present directors, Theodore J. Devine, Burton E. Hawkins and Beatrice M. Devine, are joined as defendants.
The case comes to us on appeal by the plaintiff from a final decree sustaining a plea in bar and dismissing the bill. Material allegations in the bill are as follows: In pursuance of a 'conspiracy to enrich themselves and otherwise to further their personal advantage at the expense' of National, the defendants Theodore J. Devine (hereinafter called Devine) and Hawkins and one Larry M. Hess, directors of the corporation, entered into a written agreement on May 29, 1953, with one Sigmond Rosenblatt to purchase his controlling interest in the stock of National consisting of 91,350 shares for $299,793.75. The purchase price was to be paid, $52,500 on execution of the agreement, $187,293.75 on or before July 15, 1953 '(the closing date under said agreement),' and the balance of $60,000 by the promissory note of the purchasers indorsed by the defendant Beatrice M. Devine, payable in forty-eight monthly instalments with interest at three per cent on the unpaid balance.
The purchasers agreed to cause National, on said closing date, to accept the promissory note of Rosenblatt in the amount of $44,000 payable in forty-eight monthly instalments with interest at the rate of three per cent on the unpaid balance in full payment for two 1952 Cadillac automobiles owned by National and the discharge of any and all obligations of Rosenblatt to National, including $38,000 owed by him on an open account, and a promissory note dated December 30, 1951, for $16,449.71. The purchasers further agreed to cause the corporation to employ Rosenblatt in an advisory capacity for three years following the said closing date, at an annual salary of $5,000, and to pay his estate the additional sum of $20,000, payable in four equal instalments of $5,000 each, beginning ninety days after his death.
On or about July 16, 1953, pursuant to this and to other agreements dated in July, 1953, Rosenblatt transferred his controlling interest in National to the three purchasers. In order to raise the necessary funds for the purchase of Rosenblatt's stock, Devine, who was treasurer of National and dominated and controlled the board of directors, caused National to borrow $125,000 from the First National Bank of Boston and used the proceeds of the loan as part payment for the stock. He also caused the corporation to borrow $40,000 from other banking institutions to be used as part payment for the stock.
The directors have approved and ratified these transactions and in so doing 'did not safeguard National's interest with the care and diligence of reasonably prudent businessmen, and privately enriched themselves at the expense of National.' Demand was not made on the directors to bring 'action' because as they are dominated and controlled by Devine, and a majority of them participated in the wrong, demand would be futile. Nor was demand to bring 'action' made on the stockholders because the stock held by members of the board of directors constituted a majority of the stock of National and demand on them would also be futile. It is stated that the defendant Beatrice M. Devine replaced Hess as vice-president, secretary and director of National at its annual meeting on March 18, 1954. The plaintiff prays that the defendants be required to account for their profits and the damages sustained by National.
A demurrer to the bill averring that it does not set forth facts sufficient to warrant relief and that there is a want of necessary parties, namely Larry M. Hess and Sigmond Rosenblatt, was overruled.
The defendants filed a plea in bar. Therein it was alleged that the plaintiff was present at the annual meetings of stockholders of the corporation held on March 18, 1954, and March 17, 1955. At each meeting all details of the corporate borrowings and loans of which the plaintiff complains were set forth fully to the stockholders both by the oral reports of the president and treasurer and on the printed balance sheets and profit and loss statements delivered to all stockholders prior to the meetings. At the 1954 meeting 9,220 shares over and above the shares of the three individual defendants were represented of which the plaintiff owned 1,320 shares. At the 1955 meeting 11,164 shares over and above the shares of the three individual defendants were represented of which the plaintiff owned 2,600 shares. At each meeting the stockholders voted unanimously that 'the stockholders adopt, ratify, and confirm all action taken and all things done by the officers and directors of this corporation for the year just past as the same appears of record or were taken or done in the usual course of business.' The plaintiff joined in and approved these resolutions. He did not attend the annual meeting held in March, 1956, although regular notice of the meeting, with copies of the financial statements, was mailed to him seventeen days in advance of the meeting. The defendants assert that 'prescinding from the plaintiff's concurrence' in the ratifying votes of the stockholders he is barred by these votes from maintaining his bill.
There was a hearing on the plea at which the printed annual reports for the calendar years 1953, 1954 and 1955 were offered in evidence and oral testimony taken. The evidence is reported. The trial judge voluntarily filed the following findings of fact:
At the stockholders' meeting of March, 1954, it was unanimously voted 'That the stockholders adopt, ratify, and confirm all action taken and all things done by the officers and directors of this corporation for the year just past as the same appears of record or were taken or done in the usual course of business.' The plaintiff was present at the meeting and ...
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