Gottlieb v. Economy Stores, Inc.

• Decision Date: 10 March 1958
• Docket Number: No. 4762,4762
• Citation: 102 S.E.2d 345,199 Va. 848
• Court: Virginia Supreme Court
• Parties: ALEX GOTTLIEB, ET AL. v. ECONOMY STORES, INCORPORATED. Record

Page 345

102 S.E.2d 345

199 Va. 848

ALEX GOTTLIEB, ET AL. v. ECONOMY STORES, INCORPORATED.

Record No. 4762.

Supreme Court of Appeals of Virginia

March 10, 1958.

H. Lee Kanter (Morris B. Gutterman; Kanter & Kanter, on brief), for the appellants.

Joseph E. Baker (M. R. Broudy; Broudy & Broudy, on brief), for the appellee.

JUDGE: SPRATLEY

SPRATLEY, J., delivered the opinion of the court.

Alex Gottlieb and Suburban Foods, Incorporated, trading as Savemore Super Market, instituted this proceeding against Economy Stores, Incorporated, by filing a bill praying for an injunction prohibiting the defendant from denying to complainants the rights and privileges of memberships in Economy Stores, Incorporated.

Economy Stores, Incorporated, will be hereinafter called Economy and Alex Gottlieb and Suburban Foods, Incorporated, called appellants, or referred to, respectively, by name.

After an ex parte hearing, the court entered a decree for a temporary injunction. Economy answered the bill admitting that Gottlieb had been a member of the corporation but denying that Suburban Foods, Incorporated, had ever been a member. It also denied that Gottlieb's expulsion was without due cause, and moved the court to dissolve the temporary injunction.

The chancellor directed Economy to produce copies of its by-laws, rules and regulations and all pertinent minutes of the meetings of its Board of Directors. Economy produced the papers required and, at the same time, withdrew its motion to dissolve the temporary injunction. By leave of court, Economy filed an amended answer on November 13, 1956, reiterating the denials of its former answer, and further alleging that its Board of Directors had rescinded its action of May 15, 1956, whereby Gottlieb was expelled from membership, had restored him to membership on September 11, 1956, and at a subsequent regular meeting on September 26, 1956, had, after a full hearing, expelled him from membership for due cause.

On December 13, 1956, appellants, by leave of court, filed an amended bill, in which it was alleged that the expulsion of Gottlieb was improper and illegal because of inadmissible and insufficient evidence, and in bad faith. Economy answered the amended bill denying the additional allegations and again reiterated the denials of the former answers. A copy of the minutes of the meeting of the Board of Directors of Economy on September 26, 1956, was attached as an exhibit.

The cause came on to be heard ore tenus on November 16, 1956, and for reasons set forth in a written opinion, the able and learned chancellor of the trial court entered a decree on December 26, 1956, denying the injunction prayed for and dismissing the amended bill of appellants. From that decree appellants applied for and obtained this appeal.

Economy is a non-stock, non-profit Virginia corporation, organized in August 1938. Its membership is composed of one hundred and twenty-two retail grocery dealers operating as individuals, partnerships, or corporations. Its primary purpose is to aid its members by purchasing merchandise, commonly sold in their stores, at reduced prices in large volume and reselling same to its members at a lower price than such merchandise could be bought by members acting individually, and by assisting its members generally in the promotion of their business. If there are any funds remaining at the end of its fiscal year, Economy treats such funds as an overcharge and pays it out to its members on the basis of their respective purchases from Economy. The members realize a saving of approximately 8% of the cost on all items purchased through such cooperation.

The charter of Economy contains no provision for the expulsion of a member. Section 1 of Article II of its By-Laws provides that:

'Any person or firm of financial responsibility and good moral character engaged in the retail grocery business may become a member of the corporation by a majority vote of the Board of directors or members, and may remain a member only while in such business.'

Section 1 of Article III provides that:

'Any member who the Board of Directors think is not desirable may be expelled from the Corporation by a majority vote of the directors. Also any member may resign at any time.'

Suburban Foods, Incorporated, was granted a charter by the Virginia State Corporation Commission on November 16, 1953. It is engaged in operating supermarkets, trading as Savemore, in the City of Norfolk, Virginia, and vicinity, having begun April, 1954, by opening a supermarket on Taussig Boulevard, in the City of Norfolk.

Alex Gottlieb is president, treasurer, and sole stockholder of Suburban Foods, Incorporated. On December 8, 1953, Gottlieb was admitted to membership in Economy, and paid a membership fee of $1,650. His membership covered a store located on Taussig Boulevard, Norfolk, operated as the Savemore, a supermarket, until May 1, 1956.

On May 1, 1956, the above store was sold by Gottlieb to T. H. Orleans and William Goldsticker, who were to continue the operation as the H. & W. Corporation. It was agreed that the purchasers were to be permitted to use the trade name under which Gottlieb operated for a period of thirty days thereafter. However, when the purchasers attempted to use that trade name, Gottlieb instituted a suit to restrain such use.

On December 13, 1955, when Gottlieb was negotiating for the opening of a store on Military Highway, Norfolk, he applied for a distinct and separate membership in Economy, for that location. He was accepted and became a member at the new location on that date.

On May 15, 1956, the Board of Directors of Economy, at a regular meeting, adopted a motion to notify Gottlieb that his application for membership at the new location on Military Highway had been reviewed and rejected by the Board. Economy refused to deal with him as a member or to sell him goods, and thereupon Gottlieb instituted this proceeding.

On September 11, 1956, during the pendency of this proceeding in the trial court, the Board of Directors of Economy adopted a resolution reciting that whereas, it had been advised that its action of May 15, 1956, rejecting the application of Gottlieb for membership was of doubtful validity, and should be rescinded, it had, therefore, rescinded such action and restored Gottlieb to membership. It appeared that the minutes of the meeting of May 15, 1956, failed to show that any notice was given Gottlieb of the contemplated action of the Board at the meeting, and that no reason was stated for the action taken.

On September 13, 1956, Gottlieb was given written notice that certain complaints had been made against him in connection with his membership, and that on September 26, 1956, in the Directors' Room of Economy a meeting would be held for the purpose of hearing charges that his membership in Economy was no longer desirable in that:

'(1) Contrary to your express agreement, you did open your store located on Taussig Boulevard, on December 26, 1955, causing much embarrassment to and loss of good-will heretofore established by Economy Stores, Incorporated.

'(2) Events surrounding the sale of your business located in the 100 block of Taussig Boulevard, in that:

'(a) After orally agreeing to permit the purchasers thereof to use the name of 'Savemore' for a period of thirty (30) days, contrary to said oral agreement, you brought a suit to enjoin said use before said period had expired, causing much embarrassment and expense to said purchasers, who were fellow members of Economy Stores, Incorporated.

'(b) You removed, or attempted to remove, a number of articles which should have been included in the transfer of said business to the purchasers.

'(3) Misleading advertising relative to Green Stamps on August 30, 1956 and August 31, 1956.'

Gottlieb and his attorney attended the hearing on September 26, 1956, and were allowed to freely and fully take part therein. Twelve directors constituted the trial panel. A transcript of the proceedings and the evidence taken was presented before the trial court. It showed that Gottlieb and the other members of Economy had agreed that they would not open their stores on Christmas day, 1955, and the day following. A number of independent corporations and retail dealers operating grocery stores in the same community agreed with Economy and its members that, in consideration of members of Economy not opening for business on the above two days, they would also keep their stores closed. Notwithstanding his agreement, Gottlieb's store was open for business on December 26, 1955, from 3:30 p.m. to 7:30 p.m. The manager of Economy wrote to Gottlieb and complained of the violation of his agreement. Gottlieb, when first confronted with the complaint, neither denied the accusation nor made any explanation thereof. Later he promised he would answer the letter from Economy's manager, but failed to do so. Gottlieb testified before the Board of Directors and the trial court that the store was open against his express orders. He undertook to minimize the violation by saying that there were only a few sales of milk and soft drinks to customers in need of such supplies. It appeared, however, that there were present in the store between 3:30 p.m. and 7:30 p.m., on December 26, about seven employees of Gottlieb and forty or fifty customers making purchases of merchandise.

The evidence as to Charge (3) showed that Economy held an exclusive franchise from Sperry & Hutchinson Company for the use of its 'S. & H. Green Stamps,' widely known trading stamps. Gottlieb, who had the right within fifteen days after he became a member of Economy to apply for the use of 'S. & H. Green Stamps,' declined to avail himself of that right within that time. When asked by Economy whether he wanted to use those stamps in his business, he replied in the negative. However, in August, 1956, without notice to Economy, he arranged to give 'Consumer Green Stamps' with purchases...