Harry B. Duane v. Merchants Legal Stamp Company & Others. Harry B. Duane & another

• Decision Date: 21 September 1918
• Citation: 231 Mass. 113
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: HARRY B. DUANE v. MERCHANTS LEGAL STAMP COMPANY & others. HARRY B. DUANE & another v. SAME.

231 Mass. 113

HARRY B. DUANE v. MERCHANTS LEGAL STAMP COMPANY & others. HARRY B. DUANE & another v. SAME.

Supreme Judicial Court of Massachusetts, Suffolk.

September 21, 1918

March 19 1918.

Present: RUGG, C J., BRALEY, CROSBY, & CARROLL, JJ.

Equity Jurisdiction, No aid between wrongdoers.Wrongdoer without Remedy.Constitutional Law.

In a suit in equity by one of the stockholders of a trading stamp corporation which had conducted a monopolistic business in violation of

St. 1908, c.

454, against the corporation and the other parties to the enterprise, it was said that, "The theory of the law is that general morality and business integrity are best promoted by not undertaking to aid repentant participants in executed illegal transactions" and by leaving them without remedy against one another.

Duane v Merchants Legal Stamp Co.227 Mass. 466 , affirmed and declared not to be distinguishable from St. Louis, Vandalia & Terre Haute Railroad v.

Terre Haute &amp Indianapolis Railroad, 145 U.S. 393.

It also was held, that no federal question was raised in the present case of Duane v. Merchants Legal Stamp Co. and, moreover, that, if such a question was raised, the plaintiff had not been deprived of his property without due process of law and had not been denied the equal protection of the laws.

BILL IN EQUITY, finally filed in the Supreme Judicial Court in its amended form on September 21, 1917, by a stockholder of the Merchants Legal Stamp Company, a business corporation organized under the laws of this Commonwealth, containing the allegations described in the opinion and praying for the following relief:

"1.That the individual defendants be enjoined from continuing to manage the affairs and conduct the business of the stamp company in violation of St. 1908, c. 454, or any other law or laws of this Commonwealth, and from imposing or enforcing in the management of its business or in the sale or distribution of stamps any restrictions which are in violation of said laws.

"2.That the individual defendants be enjoined from refusing to supply said Houghton and Dutton Company or any other merchants with stamps on reasonable and lawful terms under the pretence or upon the ground that they are authorized in such refusal by the terms of paragraph 7 of contract `A.'

"3.That an account be taken of the loss of lawful profits which the stamp company has suffered since January 1, 1915, by reason of the said illegal conduct of the defendant directors, and that the directors be ordered to pay the amount of such losses to the Stamp Company.

"4.For such further and general relief as to the court shall seem meet."

Also another BILL IN EQUITY, filed November 5, 1917, between the same parties except that the Ginter Grocery Company, the beneficial owner of the shares of the defendant corporation held by the plaintiff Duane, was joined as a plaintiff, the allegations being described in the opinion.The relief prayed for was as follows:

"1.That the defendants be ordered by this honorable court to recognize the rights of the plaintiff Duane as a stockholder in said corporation, and to receive in common with other stockholders dividends in the proportion of his stock holdings.

"2.That an account be taken of the profits and dividends which have been divided by the defendant corporation between its stockholders under the pretended authority of said contracts `A' and `B' since January 18, 1915, and that the defendants be ordered to pay to the plaintiff Duane on account of such profits the dividends to which he is entitled as such stockholder.

"3.That the defendants be enjoined from distributing the profits of the business among the stockholders in proportion to the purchase of the stamps by them or the firms or corporations which they represent, and be enjoined from making any distribution of such profits until the further order of this court.

"4.That the defendants be enjoined from continuing to manage the affairs and business of the corporation in violation of the laws of this Commonwealth or in violation of St. 1908, c. 454.

"5.That in the meantime, until the further order of this court, a receiver for the defendant corporation be appointed by this honorable court to hold possession of its property and to manage its affairs and business in accordance with the laws of this Commonwealth and under the court's direction."

These are in substance the same as the prayers contained in the bill filed on June 10, 1916, which was before this court when the decision reported in 227 Mass. 466 was made.

In each of the suits the defendants demurred to the bill as amended, and the cases were heard upon the demurrers by De Courcy, J., who in each of the suits made an order that the demurrer be sustained and the bill be dismissed, and thereupon, at the request of the parties, reported the cases for determination by the full court.

B. B. Jones, for the plaintiffs.A. M. Lyman, for the defendants.

RUGG, C. J.For convenience the individual and corporate plaintiffs will be referred to in this opinion as the plaintiff, the defendant corporation as the Stamp Company, and the other defendants as the directors.The plaintiff alleges that he was a stockholder in the Stamp Company when it was incorporated, and still continues to be a stockholder.A suit between the same parties was considered in 227 Mass. 466 .The kind of business of the Stamp Company and the means by which it was conducted there are narrated at length and need not here be repeated.It is enough to say that, according to the allegations of the bill in that suit, the business of the Stamp Company was that of supplying trading stamps; that it employed methods expressly designed to drive competitors from the field and to create a monopoly in that branch of trade, and that a monopoly had been established so that within this Commonwealth effectual rivalry practically had been eliminated; that the methods used in the promotion of the business and the establishment of the monopoly were in direct defiance of the prohibitions against monopolistic practices contained in St. 1908, c. 454, and therefore were unlawful, as was held in Merchants Legal Stamp Co. v. Murphy,220 Mass. 281 , andMerchants Legal Stamp Co. v. Scott,220 Mass. 389.Instrumentalities adopted for the accomplishment of these ends were contracts referred to as "A,""B" and "C."The plaintiff, on the allegations of the bill there under consideration, as a stockholder and by contracts belonging to the most favored class of users of trading stamps, was an active participant in the unlawful methods and illegal practices of the Stamp Company.The purpose of that suit was stated in the decision of that caseat page 468, in these words: "Although there is a prayer that the defendant corporation be restrained from continuing to manage its affairs and from conducting its business in violation of the anti-monopoly act, St. 1908, c. 454, the frame of the bill and the burden of the complaint is for relief against discrimination toward the plaintiff in the distribution of the profits thus alleged to have been made illegally.As matter of construction it seems plain that the main purpose of the bill is to obtain for the plaintiff this money benefit by direct payment and by recognition as a shareholder, and the other allegations are incidental to that chief aim.Stripped of all subsidiary and ancillary matters, the real purpose of this bill is to procure through the aid of a court of equity a share in the profits of an illegal enterprise."That having been the construction of the allegations of that bill, and the foundation upon which the plaintiff then rested his contentions, the result was inevitable that the bill must be dismissed for the reason that courts do not supervise the distribution among wrongdoers of spoils derived from unlawful conduct.Parties to such affairs are left where their own acts put them.The law affords no help to any of them.In the light of the arguments then addressed to us, it did not seem necessary to elaborate further the reasons for that construction.

The consideration of the suits at bar must be approached with reference to that background.The historical allegations of the earlier suit touching the kind of business of the Stamp Company, the illegal methods by which it was prosecuted, and its monopolistic aim and accomplishments, are repeated in substance on the present records.Succinctly stated, the facts averred in the bills in the present suits are that the plaintiff in 1904 became one of several incorporators of the Stamp Company, a corporation organized for the purpose of carrying on the business of dealing in trading stamps.That was a legitimate enterprise.Its business was conducted in a lawful manner until 1907, when an illegal method was adopted by the Stamp Company whereby its stockholders as "insiders" were given a preference over those who were not stockholders or "outsiders," and a monopoly was established.These illegal methods, which were designed to give to the Stamp Company a monopoly of the trading stamp business and which actually produced that result, consisted chiefly of contracts "A,""B" and "C," the first two being executed between the Stamp Company and its stockholders and the third between the Stamp Company and its other customers.The plaintiff himself executed contracts in the forms "A" and "B" with the Stamp Company, each dated May 17, 1907, for a term ending on April 11, 1924.In 1915 the essential provision of these contracts, whereby the Stamp Company carried on its business, were declared to be unlawful because tending to establish a monopoly and contrary to the statute.Thereupon the plaintiff notified the Stamp Company and the directors that he...