Clayton v. James B. Clow & Sons

• Decision Date: 10 December 1962
• Docket Number: Civ. A. No. 55 C 944.
• Citation: 212 F. Supp. 482
• Court: U.S. District Court — Northern District of Illinois
• Parties: Joanna Gwin Clow CLAYTON and Joanna Gwin Clow, a minor, by Hugh A. Clayton, her next friend, Plaintiffs, v. JAMES B. CLOW & SONS, a corporation et al., Defendants.

212 F. Supp. 482

Joanna Gwin Clow CLAYTON and Joanna Gwin Clow, a minor, by Hugh A. Clayton, her next friend, Plaintiffs, v. JAMES B. CLOW & SONS, a corporation et al., Defendants.

Civ. A. No. 55 C 944.

United States District Court N. D. Illinois, E. D.

December 10, 1962.

COPYRIGHT MATERIAL OMITTED

Lord, Bissell & Brook, Theodore C. Diller, William H. Hillier, Charles H. Weiland, James J. Walsh, Jean Allard, Chicago, Ill. (Wynn, Hafter, Lake & Tindall, Jerome S. Hafter, Charles S. Tindall, Jr., Greenville, Miss., of counsel), for plaintiffs.

Charles M. Price, James T. Otis, Thomas R. Shaver, Chicago, Ill. (MacLeish, Spray, Price & Underwood, Chicago, Ill., of counsel), for defendants James B. Clow & Sons, Inc. and Earle F. Johnson.

James A. Velde, Lloyd W. Bowers, Chicago, Ill. (Gardner, Carton, Douglas, Roemer & Chilgren Chicago, Ill., of counsel), for individual defendants.

ROBSON, District Judge.

Plaintiffs, by Complaint filed June 27, 1955,¹ seek restitution of 91,200 shares of common stock of James B. Clow & Sons, a corporation,² as a part of the testamentary trust of the late Charles R. Clow, Sr.³ These 91,200⁴ shares were the result of numerous stock splits,⁵ from the 2,850 shares which had been transferred to the Company by Charles, Sr.'s widow, Hattie⁶ (trustee under the testamentary trust), in these four transactions:

                1,250 shares at $25 on January 15, 1935
                  500 shares at $30 on December 24, 1935
                  600 shares at $50 on April 28, 1938
                  500 shares at $50 on July 1, 1938
                

These shares were derived from the 437½ shares⁷ which had originally constituted the testamentary trust corpus. The 1,250 shares involved in the first transaction were used by the Company to effect a merger; the 1,600 shares involved in the last three transactions were later transferred to William E. Clow, Sr.,⁸ brother of Charles, Sr. and an officer and director of the Company.

The very narrow, and principal, issue in this enormously complicated controversy is whether William, Sr., procured the transfers from Mrs. Pryor of the 2,850 shares of common stock in the Company at inadequate prices, in breach of his fiduciary relations, either express or implied.

The physical proportions of this record and the problems involved are clearly demonstrated by an outline of its statistics. There are some 3,023 pages of transcript of the trial testimony; plaintiffs' exhibits number 2,993 (No. 2992 alone has 230 pages); defendants have 241 exhibits. The total number of pages of these exhibits runs about 6,000. There are additionally some 2,663 pages of depositions; 189 pages of excerpts from William, Sr.'s diary, along with a thick volume, unpaged, of summaries therefrom; about ten court envelopes of pleadings, interrogatories, requests for admissions, rulings, and miscellany. The proposed findings of fact and conclusions of law and objections thereto aggregate 334 pages, and the briefs after trial total 856 pages.

The testamentary trust had been created by the will, executed February 17, 1908, of Charles, Sr. who died on May 7, 1910. The will provided, in part, as follows:

(c) "* * * Mrs. Pryor is hereby given the right at any time to sell, assign, transfer and dispose of the whole or any part of said capital stock upon consent thereto given in writing by William E. Clow, Harry B. Clow and James C. Clow, or in case of the death of any of them, then upon the like consent in writing of the survivor or survivors of them and the heirs, devisees, executors and administrators of the deceased."

(d) "* * * The proceeds shall be invested and reinvested from time to time in such securities or in such loans as my said Trustee shall elect with the consent in writing of said William E. Clow, Harry B. Clow and James C. Clow, or any two of them. * * *"

In addition to seeking recovery of the shares of stock, plaintiffs seek a monetary recovery of $2,755,071.90, which sum constitutes dividends through December 31, 1959, plus five per cent interest thereon, and the amount of a 1936 dividend note, and interest, which Mrs. Pryor sold at discount to William, Sr. They point out that the defendant Delaware corporation has 294,624 treasury shares and 417,120 authorized unissued shares so it has "ample" shares to provide for the return of 92,112 shares "wrongfully acquired" of the trust corpus. If William, Sr.'s successor-defendants restore the stock for which they are allegedly liable, to the trust corpus, liability of the Company would be accordingly reduced. As to defendant Johnson, plaintiffs suggest that the exact extent of his liability abide determination of recovery from William, Sr.'s successor-defendants and the Company.

Plaintiffs assert the right to recover on behalf of the trust estate of Charles, Sr. any shares or dividends which belong to the trust estate whether or not such trust property is distributable to them or to other persons as the beneficial owners thereof, because the trustee has failed to sue therefor.⁹

Charles, Sr. left an only child, Charles R. Clow, Jr.,¹⁰ who first married Linda, by whom he had a child, Charles III. Charles, Jr. procured a California divorce, and remarried to Ella, before the expiration of a year from the divorce. The marriage to Ella was annulled and Charles, Jr. later married the present plaintiff, Joanna Gwin Clow Clayton, by whom he had a daughter, Joanna Gwin Clow, also a plaintiff.¹¹ Charles, Jr. died in a plane accident in service on March 1, 1943.

Mrs. Pryor, subsequent to Charles, Sr.'s death, married three times: first to Mr. Lawrence Peters, then Mr. Charles O. Pfeil, and later, Mr. Lawrence Pryor, who survived her. Mrs. Pryor was living at the time of the institution of this suit, but she declined to bring it or join in the suit.¹²

Defendants are the Company, the executor of the estate of Mrs. Pryor (the testamentary trustee of Charles, Sr.), Earle F. Johnson,¹³ and numerous others,¹⁴ as transferees of this Clow common stock and trustees of trusts or executors of estates to which the stock has been traced.

When Charles, Sr.'s will was executed the corporate by-laws restricted stock sales to nonshareholders by requiring that such stock be first offered to existing shareholders under the same terms. The only common stockholders at that time were his three brothers: William, Sr., Harry B. and James C., and James M. Johnson, who owned ten shares.

Charles, Sr. at the time of his death owed the Company $14,930.

The principal business of the Company since 1910 has been the manufacture of cast iron pressure pipes and fittings. It had pipe plants at Birmingham, Alabama, Coshocton, Ohio, and Newcomers-town, Ohio. Its stock has never been listed or traded on any exchange or over the counter. There had been only seven transfers of the stock up to the time of the transactions here involved.¹⁵

The ancestor, James B. Clow, in his will of January 5, 1904, bequeathed all his property equally to his four sons, William, Sr., Harry B., James C. and Charles, Sr., except the stock in the Clow Company, which he gave equally to the three sons, excepting William, Sr., but he went on to explain the reason he was excluded¹⁶ was because he already possessed a large block of the stock. The four brothers, sons of James B. Clow, by agreement dated January 30, 1908, agreed that the provision in the father's will "shall be disregarded, and all the capital stock (both preferred and common) * * * shall be divided equally between" them, one-fourth to each. Plaintiffs cite, even this 1904 agreement as indicative of William, Sr.'s over-whelming drive to procure control of the Company.

On April 28, 1932, a document executed by Mrs. Pryor, Charles, Jr. and Linda, and witnessed by Mr. Pryor, followed a suggestion by Mr. Sidney Murray, attorney for the Company. It arose out of the financial necessities of Mrs. Pryor. The Company had suspended common stock dividends in that month and she had borrowed $27,500 on a ninety-day note from a bank. Also, Charles, Jr. had left his first wife, Linda, in August, 1931, and she too had gone to William, Sr. about her financial problems in April, 1932. The advances from time to time were made by Clow Company on Company checks and were charged to the personal account of William, Sr. They bore interest at 6%; 1,312½ shares of Clow stock had been assigned by Mrs. Pryor, Charles, Jr. and Linda as collateral.

On November 18, 1935, Charles, Jr. transferred to his mother, Mrs. Pryor, his remainder interest under the testamentary trust, whereupon the Company issued new certificates.¹⁷ Later, on July 26, 1940, this November 18, 1935, transaction was rescinded. These two transactions are important to the respective parties' contentions and the conclusion of this case, as affecting the right or power of Mrs. Pryor to make the challenged transfers to the Company in the interval between the two documents, and as barring a cause of action in plaintiffs.

Also of importance in the solution of this cause is a Mississippi court decree, by consent, entered December 14, 1953, construing Charles, Sr.'s will, as resulting in an intestacy of the remainder interest lodged by the will in Charles, Jr. The will made no specific provision for Charles, Jr.'s predeceasing his mother, the eventuality which actually occurred. As a concomitant to the consent decree, there were executed by the plaintiffs covenants not to sue Mrs. Pryor. All these documents are covered in greater detail later herein.

In ruling¹⁸ upon various motions, including that for summary judgment, Judge Julius J. Hoffman of this Court set out with meticulous detail the facts of the controversy and legal contentions of the respective parties. He concluded that it could not be determined at that time as a matter of law that no genuine issue of fact was involved, and therefore denied the motions. He held the Illinois statute of limitations was inapplicable because this was in essence an equitable cause of action to which the doctrine of laches must be...