Crandall v. Conole

• Decision Date: 25 June 1964
• Docket Number: Civ. A. No. 35047.
• Citation: 230 F. Supp. 705
• Parties: L. Stanley CRANDALL, Plaintiff, v. Clement V. CONOLE, Charles E. Anable, Richard C. Conole, Bridwell W. Lincoln, William J. Callahan, Alva M. Meyers, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

230 F. Supp. 705

L. Stanley CRANDALL, Plaintiff, v. Clement V. CONOLE, Charles E. Anable, Richard C. Conole, Bridwell W. Lincoln, William J. Callahan, Alva M. Meyers, Defendants.

Civ. A. No. 35047.

United States District Court E. D. Pennsylvania.

June 25, 1964.

Richard P. Brown, Jr., Philadelphia, Pa. (Morgan, Lewis & Bockius, Philadelphia, Pa., Havens, Wandless, Stitt & Tighe, New York City, of counsel), for plaintiff.

Gilbert W. Oswald, Thomas G. Meeker, Tom P. Monteverde, Philadelphia, Pa. (Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., of counsel), for defendants.

CLARY, Chief Judge.

This is an action by L. Stanley Crandall, plaintiff (hereinafter called "Crandall"), against Clement V. Conole (hereinafter called "C. V. Conole"), Charles E. Anable (hereinafter called "Anable"), Richard C. Conole (hereinafter called "R. C. Conole"), Bridwell W. Lincoln (hereinafter called "Lincoln"), William J. Callahan (hereinafter called "Callahan"), and Alva M. Meyers (hereinafter called "Meyers"), defendants. Crandall and C. V. Conole each own 300,000 shares, each comprising 50%, of the outstanding shares of common stock (total issued 600,000 shares) of Business Supplies Corporation of America (hereinafter called "BSC"), a corporation organized and existing under the laws of the Commonwealth of Massachusetts. The remaining five defendants are Officers and Directors but not stockholders of BSC.

The case is presently before this Court for disposition of the following motions: (1) Plaintiff's motion for preliminary injunction (Docket Paper #3), including the amendment to said motion (Docket Paper #16); (2) Plaintiff's motion to hold defendants in civil contempt (Docket Paper #9); (3) Defendants' motion for preliminary disposition of motion for dissolution of temporary restraining order and to dismiss complaint (Docket Paper #7); (4) Defendants' motion for dissolution of temporary restraining order and to dismiss complaint (Docket Paper #8); (5) Defendants' amended motion for dissolution of temporary restraining order and to dismiss complaint (Docket Paper #13). Extensive hearings were held covering many trial days, briefs and requests for findings of fact and conclusions of law have been submitted (Docket Papers #17, #18 and #19), and argument has been had thereon, at the conclusion of which the Court took the matter under advisement.

As the case unfolded, it became increasingly clear to the Court that an extra-judicial adjustment of the differences between the parties would be the most sensible solution of the entire controversy and advantageous to all concerned. Several times during the course of the hearings, the Court urged counsel to attempt to effectuate such an adjustment, to which end, a series of conferences took place between respective counsel, and the plaintiff and C. V. Conole individually, without counsel. These conferences began during the hearings and continued long after they had ended, but the parties failed to reach an accord. At this point, the writer of this Opinion met with counsel and then, for the first and only time since he has been on the bench, met briefly with each of the two principals separately and without counsel, and finally with the principals and counsel. While possible solutions were discussed, and despite the strong urging of the Judge to settle, without specifying how, it became evident that an amicable solution could not be attained. Therefore, the Court will proceed to dispose of the matter.

1. MOTION FOR PRELIMINARY INJUNCTION AND RELATED MOTIONS

Crandall, in 1956, was the National Sales Manager of the Data Processing Supplies Division of International Business Machine Corporation (hereinafter called "IBM"), at which time he aided officers and counsel for that company in the preparation of a proposed Consent Decree in an antitrust suit by the Government. By the terms of said Consent Decree, IBM was to encourage new competitors in the data processing card field. Crandall, seizing the opportunity to enter a theretofore virtually closed field, obtained not only the permission of IBM to leave and engage in this field, but the testimony indicates that he was advised so to do. He left IBM and teamed up with C. V. Conole, who had had a widely varied and successful business career. C. V. Conole was to furnish the administrative ability, Crandall the "know-how", and they sought outside financing which was obtained from people by the name of Leidesdorf. The Leidesdorfs very shortly became disenchanted with the venture, which resulted in litigation lasting five years. It ended in 1962 in a settlement by which the Leidesdorfs, from a relatively small investment, realized over $1,000,000.00 in settlement. This left Crandall and C. V. Conole in complete ownership of the Company on a 50% basis.

Since Crandall left IBM in 1956, and up to the present, he and C. V. Conole have collaborated on many ventures and have built a really substantial business enterprise. During this period they have purchased or incorporated eleven companies, some of which have been dissolved (Exhibit C-10). The necessity for a discussion of the ramifications of the dealings between the two in the interim period has been eliminated because the defendants herein insist that this proceeding be limited strictly to the granting or refusing of a preliminary, not a final, injunction.

It is interesting to note that from 1956 up to the present, with the exception of the brief period above referred to when the Leidesdorfs were involved, during all of the related transactions, one very significant thing remained constant, viz., Crandall and C. V. Conole always owned equal one-half interests in the corporations with equal voting power.

In 1962, Crandall became a full-time employee of BSC, successor of Whiting Paper Company, a Massachusetts corporation, purchased in 1959. This company was incorporated in 1872 and has had a long and distinguished record in the stationery field. Crandall, with full trust and confidence in the arrangement he had with C. V. Conole, entrusted the full management and operation of the business to C. V. Conole. He permitted C. V. Conole to name all of the Directors, except himself. C. V. Conole named all of the Officers and hired the key personnel, always, of course, with consultation and agreement with Crandall. In other words, C. V. Conole ran the operation, fully acquiesced in by Crandall.

However, it began to appear early in 1963 that C. V. Conole was planning to make this a family empire. He had earlier placed his son, R. C. Conole, in the position of President of the Company, although his son is now only 27 years of age, and for a position of this importance, has very limited business or technical training. His brother-in-law, Charles E. Anable, another defendant, is a Vice-President and Director of the Company. In related companies, a son-in-law and his brother are managing officers, but are not involved in this proceeding. When C. V. Conole tried to make his son Chief Executive Officer in February, 1963, the proposal was voted down by the Board.

The Company, because of its rapid success beyond any reasonable expectations (sales for 1962 and 1963 totaled in excess of $20,000,000.00), has been hampered by lack of cash working capital. In order to operate, the Company received extensive credit from its chief suppliers and obtained a loan of approximately $1,000,000.00 from the Chase Manhattan Bank (hereinafter called "Bank"). As part of the agreement for the loan with the Bank, Crandall and C. V. Conole, as stockholders, voted to amend the Articles of Incorporation to increase the authorized common stock of the Corporation to 1,200,000 shares, to be issued by the Board when, at its discretion, it was deemed advisable (Exhibit C-17-I). Of the authorized shares, Crandall and C. V. Conole each received 300,000 shares. The remaining 600,000 shares were intended to be offered publicly to bring in not less than $2,000,000.00 to pay off principal creditors and the Bank loan, the balance to remain as working capital. A prospectus was prepared but the issue was never consummated because of a sharp decline in the stock market, as well as BSC becoming involved in litigation with IBM, and difficulties which arose from an Internal Revenue Service investigation. The prospectus contained no mention of proposed stock options. On August 27, 1963, the provision for the public offering was deleted from the loan agreement, after which Crandall asked C. V. Conole to agree to cancel the remaining outstanding authorized issue in order that the 50% arrangement continue. C. V. Conole refused.

Following this refusal, Crandall held various meetings with defendants, Meyers, Lincoln and Callahan, as well as William E. Speers, Jr. (hereinafter called "Speers"), and Charles J. Molloy, Esq. (hereinafter called "Molloy"), Directors but not defendants. He informed them of his concern about the management and financial condition of the Company and invited their assistance in his forthcoming effort to thwart C. V. Conole's apparent attempt to convert BSC from a jointly held Corporation to a family empire. Crandall was concerned, and properly so, about the Internal Revenue examination. The details thereof are fully set forth in the record and would be important on final hearing, but not at this preliminary stage. It is sufficient to note that if the proposed action by the Internal Revenue Agent is taken, millions of dollars previously charged off as expense, will be placed in income, with a resulting tax liability running into the millions of dollars not only against the Corporation but also against Crandall and C. V. Conole and their respective spouses personally.

Crandall and C. V. Conole were also personal guarantors on a note for $1,000,000.00 to the Bank, said note being security for the above related loan. Although the Bank and principal creditors knew of the existence of the Internal Revenue claim, they did...