Efron v. Kalmanovitz, 26869

• Decision Date: 21 April 1964
• Docket Number: No. 26869,26869
• Citation: 38 Cal.Rptr. 148,226 Cal.App.2d 546
• Court: California Court of Appeals Court of Appeals
• Parties: Jacob G. EFRON et al., Plaintiffs and Appellants, v. Paul KALMANOVITZ et al., Defendants and Respondents. Civ.

Page 148

38 Cal.Rptr. 148

226 Cal.App.2d 546

Jacob G. EFRON et al., Plaintiffs and Appellants, v. Paul KALMANOVITZ et al., Defendants and Respondents.

Civ. No. 26869.

District Court of Appeal, Second District, Division 3, California.

April 21, 1964.

Rehearing Denied May 19, 1964.

Hearing Denied June 16, 1964.

Sydney J. Dunitz, Beverly Hills, and Horowitz & Howard, Los Angeles, for appellants.

Murray M. Chotiner, Beverly Hills, and J. Albert Hutchinson, San Francisco, for respondents.

FORD, Justice.

The plaintiffs have appealed from a judgment in favor of the defendants in a stockholders' derivative suit wherein minority stockholders challenged the propriety of the sale of assets of the Maier Brewing Company, a corporation, to S & P Company, a corporation. The plaintiffs At the time of the pretrial conference the parties were in agreement as to most of the pertinent facts. Such agreement was embodied in the ensuing order and portions thereof will be noted herein. Maier Brewing Company, hereinafter called Maier, was a California Corporation and had its principal place of business in the County of Los Angeles. For more than fifty years it had been engaged in the brewing of beer and other malt products. In that time it had spent 'many millions of dollars' in advertising its name and products. It had a good reputation 'for brewing and selling of fine quality beer.' About May 1, 1950, the defendant Paul Kalmanovitz was the registered owner of 42,428 shares of stock of Maier. Thereafter he acquired additional shares so that, as of June 29, 1958, he held 67,720 shares of the 100,000 issued and outstanding shares of that corporation. Some of the shares were registered in his name and some were registered in the names of various corporations the shares of stock of which were wholly owned by Mr. Kalmanovitz.

have also appealed from orders of the trial court with respect to costs claimed by the defendants. ¹

S & P Company was a California corporation. Mr. Kalmanovitz and his wife each held fifty percent of the outstanding shares of the stock of that corporation.

A meeting of shareholders of Maier was held on Sunday, June 29, 1958. Before that day the board of directors was composed of Mr. Kalmanovitz, Henry Greenstone, who is one of the plaintiffs in the present action, and George Alef. At the meeting a new board of directors was elected which consisted of the defendants Chris A. Wasem, George Alef, and R. J. Wallerstein. At that time Mr. Wasem was the sales manager of Maier and his annual salary was $30,000, Mr. Wallerstein was plant manager of Maier and his annual salary was $12,000, and Mr. Alef was employed by S & P Company and by another corporation the shares of stock of which were wholly owned by Mr. Kalmanovitz.

At the stockholders' meeting of June 29, 1958, Mr. Kalmanovitz, acting on behalf of S & P Company, presented an offer to purchase certain assets of Maier. That offer is set forth in the footnote. ² The offer submitted by Mr. Kalmanovitz was approved by the vote of shareholders having a majority of the shares and the offer was accepted by the new board of directors of Maier.

In response to a request for the admission of facts the plaintiffs stated that, for the purpose of the action, they admitted that as of June 29, 1958, the Maier assets sold to S & P Company had a fair market value of The findings of fact of the trial court were in part as follows: 1. The terms of payment of the purchase price were fair to Maier and to each and all of its shareholders. 2. No fraud or fraudulent act was carried out by any defendant as against Maier or any of its shareholders with respect to the subject matter of the action. 3. The net profits of Maier before payment of income taxes for the period of 1958 was $219,505.28. 4. Payments have been made by S & P Company to Maier on or before the dates designated in the offer of purchase and the conditional sales contract and promissory note executed pursuant thereto. 5. S & P Company has changed its name to Maier Brewing Company and Maier has changed its name to Keller Street Development Company. 6. The defendants, and each of them, have incurred expenses, including attorneys' fees, which were reasonable and necessary in the defense of the action. The conclusions of law were that the agreement for the sale of the assets of Maier and the conditional sales contract and promissory note supplementing that agreement were 'in all respects fair, proper and lawful as to all parties,' including Maier and all of its shareholders, and that the defendants were entitled to have a judgment for their costs, including such expenses and attorneys' fees as were reasonable and necessary in the conduct of the defense to the action. Judgment was entered accordingly.

$7,708,605.25 cash. That was the total sales price as tentatively computed in accordance with the offer, but the amount to be paid was ultimately determined to be $7,761,193.49. The plaintiffs contended, however, that the terms of the sale were unfair and fraudulent.

A summary will be given of evidence relating to the propriety of the challenged transaction.

Defendant Paul Kalmanovitz testified that he became a director of Maier in 1950 and remained a director until the election of a new board of directors on June 29, 1958. For some years he was executive vice president and was elected to the office of president about 1955. Starting about 1953 or 1954, he had frequent discussions with persons connected with Maier upon the subject of the sale of the brewery. He testified in part as follows: 'On each and every occasion when Mr. Greenstone [one of the plaintiffs] called at the Maier Brewing Company offices invariably the discussion would be trying to dispose of the brewery.'

About the 11th of June of 1958 Mr. Kalmanovitz was thinking of buying the brewery on his own account or for the S & P Company. Mr. Greenstone, who was then a director of Maier, and Mr. Kalmanovitz met about that time. In the course of their discussion Mr. Kalmanovitz said: 'I'll tell you what I want to see you about. We're going to sell the brewery.' Mr. Greenstone's response was that it was 'the smartest thing' he could do. Mr. Kalmanovitz further said: 'Well, I can start negotiating. I have a few people in mind.' In the course of the conversation, Mr. Kalmanovitz also stated: 'We made in five months $334,000. And the best months are coming, July, August, September and October.'

After his meeting with Mr. Greenstone, Mr. Kalmanovitz asked an attorney, who had done legal work for Maier for some years, to prepare an offer on behalf of the S & P Company. About June 22, 1958, Mr. Kalmanovitz had a telegram sent to Mr. Greenstone for the purpose of calling a meeting of the board of directors of Maier. Mr. Greenstone came to the office of the corporation and Mr. Kalmanovitz told him that he wanted to resign as a director of Maier. Mr. Kalmanovitz also testified that he believed that he stated to Mr. Greenstone that he wanted to represent the purchaser. Mr. Greenstone refused to sign a waiver with respect to the meeting and departed.

At the meeting of the shareholders on June 29, 1958, Mr. Kalmanovitz presided. Mr. Efron, one of the plaintiffs in the present case, voiced objections to the proposed sale. The plaintiffs Rubino, Taber, Seymour and Greenstone voted against acceptance of the offer. Mr. Kalmanovitz did not Mr. Kalmanovitz expressed the opinion that as of June 29, 1958, the reasonable and fair market value of the assets sold by Maier, excluding the accounts receivable and the inventory, was $4,000,000. Of this amount he allotted about $550,000 to land, $1,500,000 to buildings, $1,500,000 to equipment other than automotive equipment, and $450,000 to $500,000 to automotive equipment. He further testified that the inventory was worth what it had cost and that the accounts receivable had a value of 95 percent of face amount.

attend the meeting of the new board of directors which was thereafter held.

Mr. Kalmanovitz testified that he assigned a very nominal value to good will because of the uncertainty involved in the operation of a business of the nature of that of Maier. As of June 29, 1958, most of the labels under which Maier's beer was sold were private labels owned by Maier's customers. If the good will had any value, it was in an amount between $200,000 and $300,000. But Mr. Kalmanovitz further said that no value is attached to good will in the sale of a brewery.

Mr. Kalmanovitz also testified as to the operations of Maier over a period of years. Prior to the initiation of an advertising campaign in 1950, sales were very low. In 1953 beer under the Maier trade name had the largest sales of any brand in southern California. Thereafter the sales volume dropped substantially for several years but subsequently rose again. Beginning in 1954, Maier increased its sales by marketing beer under additional trade names and by producing beer for other concerns for sale under their private labels. In 1958, about 95 percent of the production was in the private label category. The product, under whatever name it was sold to the consumer, was of a uniform quality. In 1951, Maier produced 355,626 barrels; in 1952, 468,498 barrels; in 1953, 418,292 barrels; in 1954, 233,795 barrels; in 1955, 149,384 barrels; in 1956, 158,376 barrels; in 1957, 220,015 barrels; and in 1958, 329,029 barrels.

Mr. Kalmanovitz testified that one of the reasons for his belief that the assets should be sold was the hazardous nature of the brewery business, but that there were 'other very good reasons.' In response to the next question addressed to him, which was whether that was one of the reasons for his desire to make the purchase, Mr. Kalmanovitz replied: 'Well, I would say that was one of the reasons. I like to operate without interference from my minority stockholders which were constantly--well, I would say that would be one of the reasons, yes.' Mr....