Drob v. National Memorial Park, Inc.

• Decision Date: 13 March 1945
• Citation: 28 Del.Ch. 254,41 A.2d 589
• Court: Court of Chancery of Delaware
• Parties: DROB et al. v. NATIONAL MEMORIAL PARK, Inc., et al. (two cases)

41 A.2d 589

28 Del.Ch. 254

DROB et al. v. NATIONAL MEMORIAL PARK, Inc., et al. (two cases)

Court of Chancery of Delaware

March 13, 1945

Marlowe must account for all commissions received on sales after the alleged resolution of the directors in September of 1942 but a receiver will not be appointed. A decree will be entered in accordance with this opinion.

The petition under Section 31 of the General Corporation Law seeks no real relief, and a decree dismissing it will be entered.

Aaron Finger (of Richards, Layton & Finger), of Wilmington, for complainants and petitioners.

James R. Morford (of Marvel & Morford), of Wilmington, for defendants in both proceedings.

OPINION

THE CHANCELLOR:

The complainants in the bill and the petitioners under Section 31 of the General Corporation Law, Rev.Code 1935, § 2063 are the administrators of the estate of Morris Drob, who died intestate January 21st, 1942. In one proceeding they seek the appointment of a receiver for National Memorial Park, Inc., a solvent going corporation, in order to wind up its affairs, if necessary. In the other, they seek to review and have this court determine the validity of the alleged election of directors of the defendant corporation at the purported stockholders' meeting held December 5th 1942, but no other relief is sought.

The bill was filed November 27, 1942 and the petition February 24, 1943.

In September of 1933, Robert Fineberg, now known as Robert F. Marlowe, organized National Memorial Park, Inc., and transferred to it two contracts for the purchase of certain real estate in the State of Virginia, near the City of Washington. The consideration for the transfer was the issuance to Marlowe of all the authorized capital stock of the corporation, which consisted of 100 shares of stock without par value. The corporation was organized to operate a memorial cemetery, without tombstones. At first, lots were sold only in blocks for investment purposes; later, they were sold only for burial purposes. Under the plan adopted, a part of the proceeds from all sales was retained for the upkeep and improvement of the cemetery. In order to help finance the project, Marlowe sold 50 shares of his stock to Morris Drob for $ 15,000, and by agreement that fund was paid into the corporate treasury. By mutual consent, new officers and directors of the corporation were elected at a stockholders' meeting held June 11th, 1934, and the minutes of that meeting, attended by both Marlowe and Drob, contained the following statement:

'Mr. Fineberg stated of record that he had sold a one-half interest in his stock holdings to Morris Drob, but that the same had not been transferred on the books of the corporation by reason of the fact that all of the officers having resigned there were none to accept the transfers and to issue new stock. He also stated that after the present meeting he proposed issuing one share of stock to Constance Marlowe. Mr. Drob stated that after the meeting he proposed issuing one share of stock to Harry A. Altman and one share to John J. Mullahy.'

The stock transfers were made accordingly, and the corporate records thereafter showed the following registered owners: Robert Fineberg, 49 shares; Constance Marlowe, 1 share; Morris Drob, 48 shares; Harry A. Altman, 1 share, and John J. Mullahy, 1 share.

At the June 11th meeting, Marlowe (Fineberg) and his nominee and two nominees of Drob were elected directors of the corporation. On the day following a directors' meeting was held, at which Marlowe was appointed general manager at an annual salary of $ 10,000. He was to have 'complete charge, subject to the supervision of the officers and directors of the affairs of the corporation.' A resolution was also passed directing the corporation to 'employ Morris Drob in an advisory capacity to assist the General Manager and Comptroller at a salary of Five Thousand Dollars ($ 5,000.00) per annum.' Both accepted the employment but Drob, who was a public accountant, was to devote only a part of his time to the affairs of the corporation. Marlowe's salary was subsequently increased to $ 225.00 per week, and Drob's was increased, by the same amount, to $ 125.00 per week. Some time subsequent to 1934 differences arose between Marlowe and Drob which became acute by 1938. On April 23rd, 1936, the directors unanimously passed a resolution, directing that Robert Marlowe be paid $ 3500 for past services. It, however, contained the significant statement that all advances to that date were to be credited on that amount. On the same date, a resolution was passed, directing the payment of $ 3500 to Harry A. Altman, treasurer of the corporation, as compensation for past services; and that sum was paid in instalments of $ 500 each. Altman paid the entire amount to Drob, though it seems that he received certain benefits therefrom, the nature of which will be considered later. The corporate records indicate that on or about February 28th, 1936, Drob and Marlowe each lent the corporation $ 7500. This seems to have some relation to the purchase price of the 50 shares of stock sold by Marlowe to Drob in 1934. For some unexplained reason, the books which were under the general supervision of Drob at first showed a credit to Drob & Company for the whole amount.

The corporation has never paid any dividends on its capital stock, but the records show that Marlowe had withdrawn, from time to time, $ 6,735.64 and that Drob had likewise withdrawn $ 5,855.50.

During the year 1938 Drob accused Marlowe of making secret profits on the sale of lots, of benefiting relatives in various ways at the corporation's expense, and of using devices to enable him to acquire Drob's stock in the corporation at Marlowe's own figure. At a directors' meeting held June 11th, 1938, which was attended only by Marlowe, his son and Drob, an attempt was made to terminate Drob's employment. At a meeting held June 25th, 1938, attended by the four directors, Drob undertook to terminate the employment of both Marlowe and his son, claiming that they were disqualified by interest from voting on the motion. The controversy was bitter, and perhaps Drob's charges can be summed up by a letter to Marlowe dated November 14th, 1938, in which he said:

'You have used every trick imaginable to deprive me of my rights in this Company. You have systematically planned and persistently endeavored to discourage me to enable you to acquire my holdings in the corporation at your price.'

Finally on July 29th, 1939, a stockholders' meeting was held at which the corporate by-laws were materially amended. The minutes state:

'The Stockholders being informed by legal opinion that certain changes were necessary and desirable in the By-Laws of the Corporation, thereupon considered changes in the By-Laws. On motion duly made, seconded and unanimously adopted, Paragraph II of Chapter V of the By-Laws was amended to read as follows:

'3. Six (6) persons shall constitute the Board of Directors.

'4. An attendance of five (5) of the directors shall be necessary to constitute a quorum for the transaction of business.

'5. An affirmative vote of five (5) of the six (6) directors shall be necessary for the Board of Directors to take any action on any subject.

'On motion duly made, seconded and unanimously passed, Chapter XXII was amended to read as follows:

'These By-Laws may be amended at any regular or special meeting of the stockholders by holders of a majority of the outstanding stock.'

The amendment, therefore, provided (1) for six directors, and required that attendance of five for a quorum; (2) for the affirmative vote of five of the six directors to take 'any action on any subject'; and (3) that future amendments to the By-Laws could only be made on the vote of a majority of the holders of the outstanding stock.

It seems that Drob and Marlowe were still unable to agree. On January 15, 1940 Marlowe obtained from Drob an option to purchase 50 shares of the corporate stock 'which you (Drob) own or control' for $ 75,000; but that option was not exercised. Negotiations for a sale of Drob's stock to Marlowe had been going on since 1937 but to no purpose. At a directors' meeting held February 28, 1942, the minutes purport to show that Frank W. Worth who had been elected vice-president of the corporation at the stockholders' meeting on July 29, 1939 and Fay Marlowe, wife of Robert F Marlowe were elected directors to fill the vacancies caused by the deaths of Morris Drob and Dr. Hancher. No By-Law authorizing that action was produced. The board then purported to pass a resolution authorizing and directing Worth to assume the duties of president of the corporation pending the election of a president to succeed Dr. Hancher. On September 28, 1942 the alleged new corporate board adopted a resolution authorizing the payment of an over-writing commission of 5% to Marlowe on all future business done by the corporation. No annual stockholders' meeting had been held, however, since July 29, 1939 at which Robert F. Marlowe, Norman Marlowe, John W. Hancher, Morris Drob, Harry A. Altman and John J. Mullahy were elected directors of the corporation. Only four of these or less than a quorum were living on September 28, 1942. Drob died January 21st, 1942 and Dr. Hancher died in February of the same year. Harry Drob, a brother of Morris Drob and one of his administrators testified that as between them he was the real owner of one-half of Morris Drob's stock in National Memorial Park, Inc. and by agreement with him was to receive one-half of the weekly amounts paid during his lifetime. After the latter's death, Marlowe was told of Harry Drob's interest, and was requested to continue to pay him temporarily one-half of the prior weekly payments....