Dold Packing Co. v. Doermann

• Decision Date: 07 September 1923
• Docket Number: 6293.
• Citation: 293 F. 315
• Parties: DOLD PACKING CO. v. DOERMANN et al.
• Court: U.S. Court of Appeals — Eighth Circuit

293 F. 315

DOLD PACKING CO. v. DOERMANN et al.

No. 6293.

United States Court of Appeals, Eighth Circuit.

September 7, 1923

This is a general statement of the situation and facts in this case:

In March, 1918, the Skinner Packing Company was organized as a corporation under the laws of Maine, with a capital stock of $2,500,000 divided into shares of $100 each, of which 20,000 shares were preferred stock without voting power and 5,000 shares common stock, to which was given the exclusive rights of voting at stockholders' meetings. The preferred stock was later increased to 75,000 shares. The purpose, among others, of the corporation was to engage in and carry on the slaughtering and marketing of live stock and all subsidiary branches now recognized as part of that business. Other purposes of the Skinner Packing Company, as shown by its articles of agreement and certificate of incorporation, are these: the construction and operation of tanneries; the construction and operation of stockyards, cold storage plants and warehouses; the production, manufacture and sale of all kinds of food products; the buying and selling of all kinds of cereals and the manufactured products thereof; the construction and operation of elevators, mills and granaries the buying, leasing, owning, selling and mortgaging of real estate, and the buying, holding and selling of all characters of personal property, including trade-marks, copyrights bonds and stocks in other companies and corporations. The Skinner Company was thus given broad and various powers. The promoters decided to construct a large packing plant at Omaha, Nebraska. They and the company were without the necessary funds for that purpose. They subscribed for more than 80% of the common stock, made small payments therefor, gave their notes for the balance and at once set about selling the preferred and a very small part of the common, principally to farmers in Nebraska and adjoining states, on the representation that the company would build and establish a packing plant at Omaha to be conducted independently of the so-called packers' trust, and thus afford a better and higher market for live stock. More than 65,000 shares of the preferred were disposed of in this way. Out of the money received, buildings with equipment to carry on a meat packing business were constructed at Omaha, so that the company opened its plant early in the spring of 1920 and began to purchase and slaughter cattle and hogs. In the course of a month it was discovered that heavy losses were being incurred and the plant was shut down. In October, 1920 the president of the company, who held more than 70% of the common stock, went to Buffalo, New York, and proposed to Jacob Dold Packing Company of that place that it take over the Omaha plant and operate it for a term of years on a profit-sharing basis, if a contract for that purpose could be agreed upon between the Skinner Company and the Dold Company. He was not willing to lease it outright. After preliminary discussion, he put his proposition in writing. The representatives of the two companies, after prolonged negotiations, reached terms of agreement, which were submitted to counsel learned in the law representing each side and a final draft was executed after it had been approved by the Board of Directors of the Skinner Packing Company. The Jacob Dold Packing Company was not a party to the contract. Under agreement with the Skinner Company, it caused the Dold Packing Company to be incorporated under the laws of Delaware and the contract as executed was between Skinner Packing Company and Dold Packing Company. The new company was owned by and its policies were, as provided in the contract, to be controlled by Jacob Dold Packing Company. That contract bears date October 26, 1920. By its terms the Skinner Company leased to the Dold Company for a term of four years beginning November 1, 1920, all of its plant and equipment (except a cold storage building and plant which stood separate and apart from the main plant and had cost $975,000) and gave Dold Company the right and privilege of renewal or extension of the lease for an additional term of three years. It bound the Skinner Company to fully complete its plant and equipment for the proper and economical conduct of the packing business, including any additional livestock storage facilities deemed proper by the Dold Company, and in default the Dold Company was given the right to complete the machinery, equipment and facilities of the plant, and the cost and expense thereof to the Dold Company should be immediately paid to it by the Skinner Company. The Dold Company agreed to conduct and carry on the packing business at the plant during the term of the lease, to procure and furnish the necessary capital for that purpose, and in no event should the capital invested in the operation of the business be less than $1,000,000. If earned as profits, the Dold Company was to receive 6% per annum as interest on its invested capital, but if not earned in any year the deficiency should not be charged to the Skinner Company nor should that item be computed as an expense nor carried over as a charge in succeeding years. Jacob Dold Packing Company was to receive $15,000 a year for the executive management of the Dold Company by the administrative staff of the former. The Skinner Company was required to keep the property insured and to pay all taxes and assessments levied against it. It reserved certain privileges in the purchase of products produced by Dold Company, to be delivered to the Skinner Company at the cold storage plant which it reserved, one of the purposes being that the Skinner Company might thus put out packing house products under its own brand and build up a trade under its name. There was provision for auditing the books of the Dold Company, the profits or losses thus ascertained to be divided equally between Dold Company and Skinner Company. The Skinner Company bound itself to cause the agreement to be submitted to and ratified by its Board of Directors and its voting stockholders. There was no express provision of forfeiture of the rights of Dold Packing Company under the contract.

It provided that if Dold Company did not operate the plant for a continuous period of six months, excepting causes beyond its reasonable control, then and in such event the Skinner Company had the right to terminate the lease upon thirty days' written notice. The Dold Company took possession of the plant on November 1, 1920. All of its $1,000,000 capital was paid up, and $250,000 additional as surplus for use in operation. On failure of the Skinner Company to make the needed changes and furnish additional equipment for efficient operation, the Dold Company did so, under the terms of the contract, at a cost to it of $143,000. It put the plant at once in operation and has continued to operate it under the terms of the lease and agreement, doing a business of $12,000,000 the first year, but sustained losses during that year of about $300,000, half of which and the $143,000 expended by it were charged to the Skinner Company under the contract but none of it has been paid to the Dold Company.

On the proof taken, the Master reported to the court, as directed, his findings of fact and conclusions of law therefrom. All exceptions to the report taken by the Dold Company were overruled, it was approved and confirmed by formal order, without any reasons given therefor or opinion thereon by the court; and, as recommended by the Master, the court entered a final decree on October 5, 1922, ordering and adjudging the lease contract between the Skinner Packing Company and Dold Packing Company to be null and void and of no force and effect; that Neville, Receiver, was entitled to the immediate possession of the premises and property described in the lease contract and restitution thereof was awarded to him; that the Dold Packing Company forthwith vacate those premises and surrender possession to the receiver, and, if necessary, writ of possession to issue to put him in possession. It was further decreed that the Skinner Packing Company was not liable to the Dold Packing Company for any losses suffered by it in the conduct of its business in operating the plant and that the Dold Company was liable for reasonable rent for the premises during its occupation. This appeal is brought by the Dold Packing Company from that decree.

On April 15, 1921, five and a half months after Dold Packing Company took possession of the plant, Frank H. Doermann and five other stockholders in the Skinner Packing Company owning in the aggregate 248 shares, filed a bill in the court below against the Skinner Packing Company charging fraudulent conduct on the part of the president of that company and his associates on the Board of Directors in the management of the company's affairs. They alleged that the president and other officers had been allowed and had been paid exorbitant amounts as salaries, that the president held a majority of the shares of the common stock for which he had paid a small amount and had given his note in the sum of $245,000 for the remainder of the consideration of their purchase, that other associates of the president and directors in the company had had similar transactions and held large amounts of the company's common stock for which they had given their notes, that the president and his associates on the Board of Directors, on account of their pretended ownership of most of the common shares, which alone was given the right to vote, controlled and dominated the company and they had caused the company to enter into contracts with them as individuals, for their personal benefit, by the terms of which they were to receive large sums from the company with little...