Clayton v. James B. Clow & Sons

• Decision Date: 28 January 1964
• Docket Number: No. 14247.,14247.
• Citation: 327 F.2d 382
• Parties: Joanna Gwin Clow CLAYTON and Joanna Gwin Clow Clayton, Jr. (formerly known as Joanna Gwin Clow), Plaintiffs-Appellants, v. JAMES B. CLOW & SONS, an Illinois corporation, Lawrence B. Pryor, as executor of the will of Hattie B. Clow Pryor, deceased, Earle F. Johnson et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

327 F.2d 382 (1964)

Joanna Gwin Clow CLAYTON and Joanna Gwin Clow Clayton, Jr. (formerly known as Joanna Gwin Clow), Plaintiffs-Appellants, v. JAMES B. CLOW & SONS, an Illinois corporation, Lawrence B. Pryor, as executor of the will of Hattie B. Clow Pryor, deceased, Earle F. Johnson et al., Defendants-Appellees.

No. 14247.

United States Court of Appeals Seventh Circuit.

January 28, 1964.

Theodore C. Diller, Newell S. Boardman, William H. Hillier, Charles H. Weiland, Chicago, Ill., Jerome S. Hafter, Charles S. Tindall, Jr., Greenville, Miss., Lord, Bissell & Brook, Chicago, Ill., Wynn, Hafter, Lake & Tindall, Greenville, Miss., of counsel, for plaintiffs-appellants.

Charles M. Price, James T. Otis, Chicago, Ill., Spray, Price, Townsend & Cushman, Chicago, Ill., of counsel, for defendants-appellees James B. Clow & Sons, Inc., and Earle F. Johnson.

James A. Velde, Lloyd W. Bowers, Ware Adams, Chicago, Ill., Gardner, Carton, Douglas & Chilgren, Chicago, Ill., of counsel, for individual defendants-appellees.

Before DUFFY, SCHNACKENBERG and KNOCH, Circuit Judges.

SCHNACKENBERG, Circuit Judge.

Joanna Gwin Clow Clayton and Joanna Gwin Clow Clayton, Jr. (formerly known as Joanna Gwin Clow), plaintiffs, citizens of the state of Florida, have appealed from a judgment of the district court which dismissed for want of equity, at plaintiffs' costs, a diversity action brought by them against James B. Clow & Sons, an Illinois corporation,¹ Lawrence B. Pryor as executor of the will of Hattie B. Clow Pryor, deceased, Earle F. Johnson, et al., defendants.

This case involves the validity of four separate sales of its stock (herein referred to as the Clow stock), made by Hattie B. (Clow) Pryor in 1935 and 1938 to the Company. Plaintiffs are the daughter-in-law and the grandchild of Mrs. Pryor and the defendants are the Company, Earle F. Johnson, a former officer and director thereof, and a large number of persons and banks who later acquired the stock which was sold to the Company.

The errors relied on by plaintiffs arise from the district court's conclusions of law and findings of fact, its opinion, 212 F.Supp. 482, and its final judgment.

Although the trial lasted more than a month, the evidence is largely documentary and the facts are mostly undisputed. Plaintiffs complain that the court's findings of fact are largely conclusions.

Plaintiffs seek restitution to a testamentary trust of common stock acquired from it in the name of the Company through alleged breaches of trust and fiduciary duty, participation in such breaches and upon tracing trust property to donee defendants.

Among the facts supported by substantial evidence in the record or admitted by the pleadings are those which we now set forth.

In 1878, James B. Clow and his eldest son, William E., Sr. founded a jobbing business in plumbing fixtures which was incorporated in 1894. His other sons, Harry B. Clow, Sr., James C. Clow and Charles R. Clow, Sr. joined in the business before 1900.

William E. Clow, Sr. had two sons, William E., Jr. and Kent, and one daughter, Martha (still living), married to Donald B. Douglas. Harry B. Clow, Sr. married Elizabeth McNally. They had one son, Harry B., Jr., and two daughters, all living.

James C. Clow was married to Pearl Libby, who died in 1955. They had one child, James Beach Clow, who died in 1953.

William E. Clow, Sr. was president from 1908 to 1935, and chairman of the board until his death in 1942. William E. Clow, Jr., vice-president, became president in 1935.

Sidney C. Murray, attorney for the Company, died in 1954, before this suit was started.

The stock was held in the Clow family group. In 1894 when the Company was incorporated, a bylaw² was enacted providing that any common stockholder before selling his stock to a nonstockholder would be required to notify the Company of the proposed sale and offer the stock to other stockholders at the price contemplated. The same bylaw was in effect at all times relevant herein. The stock has not been listed on any exchange or traded in any over-the-counter market.

All of the men of the Clow family have either worked for the Company or been on its board of directors.

Charles R. Clow, Sr. married Hattie Barth. Charles R., Jr., was born to them in 1905. Charles R., Sr. died in 1910, leaving a will giving his Clow stock in trust for his widow Hattie, who was to receive the dividends during her life, and upon her death to their son Charles R., Jr., if then living. The will provided in article THIRD (c) that his widow, the trustee, should have the power to sell the whole or any part of the stock upon consent thereto given in writing by William E. Clow, Sr., Harry B. Clow, Sr. and James C. Clow, or, in the 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, and under article THIRD (d) directed the widow-trustee to reinvest the proceeds of sale with the written consent of any two brothers. The will provided that the income from such reinvestments should go to the testator's widow during her lifetime and at her death the principal should go as provided with reference to the Clow stock.

Plaintiffs are the widow and daughter of Charles R. Clow, Jr. (who died March 1, 1943), only child of Charles R., Sr.

It is plaintiffs' position that Charles, Jr. owned two-thirds of the equitable reversion interest in Charles, Sr.'s trust under the Illinois law of descent; that this equitable reversion was a vested interest and, upon Charles, Jr.'s death, passed to the plaintiffs, his widow and daughter. Further they contend that under Charles, Jr.'s will, his interest in the trust shares sought to be recovered in this action, not being specifically bequeathed, passed under the residuary clause to plaintiff Joanna, Sr., except that his daughter Joanna, Jr. took a one-third interest as a child born after the will.

On January 1, 1932, Hattie Barth Clow married Lawrence B. Pryor, of Memphis, who is still living, and they moved to a plantation near Greenville, Mississippi, which Mrs. Pryor had inherited from Charles Pfeil, a deceased husband. Mrs. Pryor died in 1959 during the pendency of this suit.

Charles, Jr., married Linda Lee Doan in 1930, and of that marriage there was born one child, Charles III, who is still living. Charles, Jr. deserted Linda and their infant son in 1931 and moved to California, where, in 1934, he secured an interlocutory divorce from Linda and married Ella Hall. In 1935, Linda had the interlocutory decree set aside, and Charles, Jr.'s marriage to Ella Hall was annulled. Charles, Jr. then moved to Mississippi to live with his mother and stepfather, Lawrence Pryor. In 1936, Linda secured a divorce from Charles, Jr. in Chicago and Mrs. Pryor and Charles, Jr. gave Linda and Charles III some Clow stock in settlement.

In 1937, Charles, Jr. married plaintiff Joanna Gwin and he was married to her at the time of his death in 1943. In 1942 to them there was born one child, Joanna Gwin Clow, plaintiff. Charles, Jr.,'s widow married Hugh Clayton in 1943.

Following the effects of the depression which came upon the United States, the Company in the spring of 1932 omitted its common stock dividend and Mrs. Pryor came to Chicago. Although she had been receiving dividends on the Clow stock and had inherited substantial amounts of property from Mr. Pfeil's estate, she was in financial difficulty. The effect of an agreement dated April 28, 1932, signed by Mrs. Pryor, Charles, Jr. and Linda, his wife, as supplemented by subsequent letters, provided that $150 a month was to be paid by the Company to Mrs. Pryor as well as to Linda, and charged against the personal account of William E. Clow, Sr. He was secured by Mrs. Pryor's Clow stock. These payments continued intermittently until December 1935.

William E. Clow, at this time, was a man in his seventies. He was then and had been for decades in control of the Company.

Mrs. Pryor's financial stringency continued during the period covering the four acquisitions of Clow stock involved here.

From April 1932 to January 1935, much correspondence took place between Mrs. Pryor and William Clow, Sr. indicating that she was seeking help, and there were letters from Linda to him asking for help for her and Charles III, followed by suggestions by Mr. Clow as to how Mrs. Pryor might exchange her Clow stock for a dividend-paying stock, reports on Charles, Jr.'s marital difficulties, and reports from William, Sr. to Mrs. Pryor about business conditions and when common stock dividends might be resumed.

In early December 1934, the Pryors came to Chicago and discussed with William, Sr. financial assistance for Linda. On December 20, 1934, William, Jr., vice-president, wrote Mrs. Pryor about a proposed merger of National Cast Iron Pipe Co. into the Company and the necessity of acquiring 1250 shares of common stock to retire a minority interest in National held by employees. It was first proposed that these shares be acquired by a pro rata contribution of stock from all stockholders, but Mr. Murray, the Company attorney, advised that Mrs. Pryor, as trustee, could not contribute stock and the proposal was changed to a pro rata purchase from all stockholders at $15 per share.

According to the testimony of defendant Earle F. Johnson, in December 1934, Mr. and Mrs. Pryor wanted to sell 2500 shares of Clow stock. On January 2, 1935, they came to Chicago to see William, Sr., and discussed with him means of saving Mrs. Pryor's Kansas City apartment house from foreclosure, Linda's financial situation, and the proposed National merger. They then went to Kansas City and the property was saved with funds advanced by William, Sr. Their trip to California to see Charles, Jr. followed and the Company lent $500 to them for the expenses incurred.

On January 15, 1935, Mr. and Mrs. Pryor returned to Chicago and met with William, Sr....