Brictson Mfg. Co. v. Close

• Decision Date: 05 April 1922
• Docket Number: 5944.
• Citation: 280 F. 297
• Parties: BRICTSON MFG. CO. v. CLOSE et al. [1]
• Court: U.S. Court of Appeals — Eighth Circuit

280 F. 297

BRICTSON MFG. CO. v. CLOSE et al. ^[1]

No. 5944.

United States Court of Appeals, Eighth Circuit.

April 5, 1922

M. E Culhane, of Brookings, S.D., and William M. Giller, of Omaha Neb. (Weaver & Giller, of Omaha, Neb., on the brief), for appellant.

Francis A. Mulfinger, of Omaha, Neb. (Robert J. Webb, of Omaha, Neb and Lawrence W. Rice, of Valentine, Neb., on the brief), for appellees.

Before SANBORN and LEWIS, Circuit Judges, and VAN VALKENBURGH, district judge.

LEWIS Circuit Judge.

Prior to November, 1916, O. A. Brictson had been manufacturing and selling at Brookings, South Dakota, improved automobile tires. His improvement, for which he had obtained U.S. Letters Patent in 1910, consisted, generally, of rows of metallic rivets through the tire, arranged in staggered relation and having their outer or exposed ends enlarged and flattened, the purpose being, as shown in the specification, to protect the outer surface of the tire. In the month named he and others who joined with him organized, under South Dakota laws, the appellant corporation, which immediately took over all of his interest and all of the assets of that business, including rights under the patent, as his licensee. The authorized capital of the company was $5,000,000, divided into 50,000 shares, of which 40,000 were common and the remainder preferred stock, of which Brictson, in consideration of the transfer to the company, received all of the common stock and 1,000 shares of the preferred stock, but at once donated back to the company 8,000 of the common and 250 of the preferred. In further consideration of the transfer he was permanently employed to manage the company's business at a salary of not less than $7,500 for the first year and not less than $10,000 per year thereafter. All of this is shown by contract entered into between him and the company, and by the minutes of its board of directors held in January following. The board at that meeting authorized the sale of 5,000 shares of the preferred, giving therewith as a bonus a certain number of shares of the common which had been donated by Brictson. The company then submitted to the proper State authorities in South Dakota, Iowa and Nebraska its proposed plan of disposing of its stock under the requirement of what is called the Blue Sky Law, and the plan was approved. A written form of subscription for shares was made out in which it was stated that 20 per cent. received for the stock would be allowed as commission to the selling agent, and the appellees made their subscriptions on those forms. Later it was decided to change the place of manufacture from Brookings to Omaha, Nebraska, and ground at the latter place was purchased for that purpose and the company's offices were moved to Omaha.

In August, 1921, the appellees, eight in number, filed their bill in this case as stockholders. All but two of them had five shares each of the preferred stock, the other two ten each. They alleged that the preferred stock was sold for the purpose of establishing a factory at Omaha, that $28,000 of the company's money had been invested in a site for that purpose but that the factory had not been built, that the company was still carrying on a small business at Brookings that the small plant at Brookings was not worth more than $8,000, that O. A. Brictson had represented that his patent rights were worth $1,000,000 and had received in consideration therefor all of appellant's common stock, but that in fact said patent rights were not valuable, that four years have passed since a site for the new factory was purchased at Omaha, that Brictson's salary of $10,000 a year is exorbitant, that more than $300,000 has been received from the sales of preferred shares, that dividends have been paid on the preferred shares out of the money for which they were sold, that a majority of the directors have sold out and resigned, and that Brictson is in charge of the company's business and of all of its assets, that no meeting of stockholders or of the board of directors had been held in 1921, that on account of these facts the purposes for which the appellant was incorporated have failed and are impossible of being carried out, and that the only object in continuing the company is to enable Brictson to draw a large salary and remain in control of the company's affairs. It was alleged that the appointment of a receiver was necessary to preserve the company's assets, prevent waste and reckless extravagance, and to administer the company's affairs in an honest, business-like and impartial manner, until such time as the stockholders may determine and assert their real wishes as to whether the company should be liquidated or whether it should be continued under efficient management or reorganized, or some other steps taken by the stockholders upon which they might ultimately decide. There were intimations that Brictson might dispose of or hypothecate the company's assets, and also that he might be guilty of some fraudulent conduct to the detriment of the company, but there was no direct allegation to that effect, nor that any such things had ever been done by him. It was not alleged that the company was insolvent. The answer denied all intimations of fraudulent conduct on the part of Brictson, alleged that he was and had been drawing the salary fixed in a contract between him and the company, that the company was solvent, that it...