O'Hara v. Robbins

• Decision Date: 30 April 1982
• Citation: 432 N.E.2d 560,13 Mass.App.Ct. 279
• Parties: Arthur P. O'HARA v. Ryland E. ROBBINS, individually and as executor, et al. 1
• Court: Appeals Court of Massachusetts

Page 560

432 N.E.2d 560

13 Mass.App.Ct. 279

Arthur P. O'HARA v. Ryland E. ROBBINS, individually and as executor, et al.¹

Appeals Court of Massachusetts, Hampden.

Argued Jan. 19, 1982.

Decided March 12, 1982.

Further Appellate Review Denied April 30, 1982.

Gerald R. Hegarty, Springfield, for defendants.

Frederick S. Pillsbury, Springfield, for plaintiff.

Before GOODMAN, CUTTER and BROWN, JJ.

CUTTER, Justice.

This equity proceeding, initiated on July 3, 1967, by a minority stockholder of Junior Sales Club of America, Inc. (Junior Sales), sought damages from, and injunctive relief against, the defendants for alleged wrongful appropriation of a corporate opportunity of Junior Sales. Judgment was entered for the plaintiff. The defendants have appealed. The evidence is before us.

A family partnership manufactured and sold greeting cards, most recently in Springfield. In 1953, it was incorporated under the name of Sunshine Art Studios, Inc. (Sunshine). Of the shares, Willard S. Robbins held fifty percent, his wife, Grace B. Robbins, ten percent, and their son, Ryland E. Robbins, forty percent. The real estate used by the corporation was held by a related corporation, Sunshine Realty Corp. Various other corporations, not directly involved in this case, were formed from time to time to conduct particular aspects of the Robbins family greeting card enterprise.

The plaintiff (O'Hara) was a friend and college classmate of Ryland Robbins and had been office manager of Sunshine and its partnership predecessor. He was in charge of promotional work for Sunshine and of developing and testing ideas for the sale of greeting cards.

In 1954, he suggested and carried out a novel method of promoting greeting card sales through prize and money incentives to young people to sell boxed assortments of Sunshine cards. This was initiated under the name of Junior Sales Club of America, an "oral partnership" in which O'Hara was declared to be a twenty percent partner. This business (Junior Sales) was incorporated in 1955, after a satisfactory experimental period. O'Hara, "several months after the incorporation," received a certificate for twenty shares. The other shares were owned, forty by Willard Robbins and forty by Ryland Robbins. O'Hara never invested directly any money in any of the Robbins greeting card enterprises and, until the incorporation of Junior Sales, was a full-time paid employee of Sunshine which financed the testing of his idea. Ryland Robbins testified that, prior to the incorporation of Junior Sales, O'Hara was told that he would be given twenty percent of the shares of the new corporation. This was something for which O'Hara never asked or negotiated and, according to Ryland Robbins, was given because of "long friendship" and O'Hara's "work on the program."

After the incorporation of Junior Sales, O'Hara became its president and worked for and was paid by both Sunshine and Junior Sales until 1957. Then his duties became concerned almost entirely with Junior Sales. His salary was paid thereafter by Junior Sales in an amount originally intended, at least in a general way, to reflect about twenty percent of the profits of Junior Sales.

In 1956, O'Hara suggested, and developed in large measure, a program conducted under the name "Sales Leadership Club" to promote the sale of imprinted Christmas cards and other greeting cards. This involved some variation of the same marketing plan used by Junior Sales and had greater advantages both for the young distributors and for the sponsors of the program. It used in part the same customers lists and also some rented lists. An initial test period by a partnership was undertaken before this operation also was incorporated in 1958 as Sales Leadership Club, Inc. (Sales Leadership). The partnership filed a partnership tax return for the test period showing as equal partners only Willard and Ryland Robbins. O'Hara received no income from that partnership. Ryland Robbins could not recall whether O'Hara was told in advance that Sales Leadership Club was to be incorporated. In any event, O'Hara became an incorporator of Sales Leadership and was shown on certificates of condition as having subscribed to one share of its stock.

O'Hara became president of Sales Leadership when it was formed with the same officers, directors, incorporators, and corporate purposes as Junior Sales. It used many of the same methods of marketing and the two corporations were competing in the same market. O'Hara never paid even for the one share of Sales Leadership for which he subscribed.

O'Hara testified that he regarded Sales Leadership as an "outgrowth" of Junior Sales. He, however, never claimed in writing prior to 1966 that he was entitled to any shares or a share of Sales Leadership. In 1966, he requested one-third of its stock on the basis of the articles of organization. The request was refused. O'Hara conceded that neither Willard nor Ryland Robbins ever had told him that he would receive such shares. Ryland Robbins's testimony was that O'Hara was first told in 1959 he had no stock interest in Sales Leadership. O'Hara alleged in his bill and testified that he was told in January, 1962, that "he had no stock ownership in Sales Leadership." He claimed, however, that he "was not told that ... (he) wouldn't receive any stock" and at that time "believed ... (he) should be issued some stock." Between 1962 and 1966, O'Hara did nothing to assert his ownership claim, except possibly to ask about it.

From 1958 to 1964, O'Hara was paid what the management had agreed to pay him for those years. During part of those years there was discussion about O'Hara's salary, and testimony indicated that, at least in 1961 and 1962, he was given a percentage (over a base volume) of the profits of Sales Leadership. There was testimony also that at one time O'Hara had overdrawn his share of Junior Sales profits. In 1962, O'Hara and Ryland Robbins had a discussion in which O'Hara was told that the payments to him based upon a percentage of sales were to be discontinued. O'Hara testified that he then resigned from the corporations but that, upon reconsideration, a compromise was effected. His prior salary was reestablished and his paid vacation time was increased.

There was substantial evidence that payments were made from Junior Sales accounts which more appropriately might have been paid by Sales Leadership. For example, Willard and Ryland Robbins received a salary from Junior Sales every year but in only two years received salaries from Sales Leadership. Junior Sales funds were used, at least to some extent, to pay expenses and salaries for Sales Leadership.

O'Hara, as time went on, assumed other responsibilities in the Robbins family enterprises. By 1965, Ryland Robbins had moved to Arizona, and O'Hara was appointed by Willard Robbins to be general manager of Sunshine. He thus became, in effect, for a time "boss of the whole Sunshine ... operation." Because Willard Robbins failed to support him in a dispute with the manager of Sunshine's East Longmeadow manufacturing plant, O'Hara left (or was discharged from) his positions with the Robbins companies.

The evidence would have permitted finding the facts stated above. Further facts are stated below in discussing the several issues which the parties have argued.

1. On the evidence, the trial judge concluded in effect that the Sales Leadership operation was a corporate opportunity which could and should have been exploited by Junior Sales. He stated that it was the duty of the individual defendants as officers and directors of Junior Sales "to promote the business of Junior Sales and not to divert that business to another corporation." With the pattern (already mentioned) of a separate corporation for carrying out each aspect of the Robbins family greeting card business, the corporate opportunity perhaps reasonably might have been viewed by the judge as that of Sunshine. On the somewhat conflicting and largely oral evidence, however, we cannot say that the judge's conclusion was clearly erroneous. The Massachusetts cases on the diversion of a corporate opportunity have been collected very recently in BBF, Inc. v. Germanium Power Devices Corp., 13 Mass.App. 166, 172, 430 N.E.2d 1221 (1982).

2. The judge concluded that O'Hara's claim was not barred by the then prevailing torts two-year statute of limitations. See G.L. c. 260, § 2A, as in effect prior to St.1973, c. 777, § 1. He found that O'Hara was not told until early 1966 (when O'Hara and Willard Robbins corresponded about a possible purchase of O'Hara's shares in Junior Sales) that "he would receive no stock ownership in Sales Leadership or any interest in Sales Leadership by virtue of his stock ownership in Junior Sales." The judge had found earlier that, in discussions in 1962, O'Hara had been "told that he had no stock in Sales Leadership." The judge decided, however, that because of the "close personal relationship between O'Hara" and the Robbinses, father and son, O'Hara had every reason to believe that he would be treated fairly as an "employee and as a minority stockholder in Junior Sales." O'Hara, of course, "knew that Sales Leadership had been incorporated to carry on ... business in ... competition with Junior Sales, (but) he had no reason to complain" which would "require him to ... take legal action." He had received until 1962 compensation based in part upon Sales Leadership's sales and no shares in Sales Leadership were issued to any shareholder until 1966. Thus the correspondence in 1966, after he had left the Robbins companies, constituted the earliest repudiation of his claim which required "him as an officer and director of Junior Sales to complain about the diversion of its profits."

Upon the somewhat confused and conflicting testimony, the trial judge was justified in determining that the statements to O'Hara in 1959 and 1962 that he had no stock in Sales Leadership did not...