Jackson v. Nicolai-Neppach Co.

• Decision Date: 31 December 1959
• Docket Number: NICOLAI-NEPPACH
• Citation: 348 P.2d 9,219 Or. 560
• Parties: Hazel M. JACKSON, Appellant, v.CO., an Oregon corporation, Respondent.
• Court: Oregon Supreme Court

Page 9

348 P.2d 9

219 Or. 560

Hazel M. JACKSON, Appellant, v. NICOLAI-NEPPACH CO., an Oregon corporation, Respondent.

Supreme Court of Oregon, Department 2.

Argued and Submitted Nov. 19, 1959.

Decided Dec. 31, 1959.

Robert S. Miller, Portland, argued the cause for appellant. On the brief were King, Miller, Anderson, Nash & Yerke and Paul R. Meyer, Portland.

Earl F. Bernard, Portland, argued the cause for the respondent. On the brief were Bernard, Bernard & Edwards and William E. Hurley, Portland.

Before McALLISTER, C. J., and ROSSMAN, SLOAN and KING, JJ.

ROSSMAN, Justice.

This is an appeal by the plaintiff, owner of 50 per cent of the corporate stock of the defendant, Nicolai-Neppach Co., an Oregon corporation, from a decree of the circuit court which denied the plaintiff's prayer for the appointment of a receiver to liquidate the business of the corporation and distribute its assets to its shareholders. The principal ground of the complaint is that the shareholders are deadlocked in voting power and for three successive years have been unable to elect successors to the members of the board of directors. The suit was brought under a section of the Oregon Business Corporation law, ORS 57.595(1)(a)(C) which authorizes liquidation in the event of shareholder deadlock.

The section of our laws just cited provides:

'(1) The circuit courts shall have full power to liquidate the assets and business of a corporation:

'(a) In an action by a shareholder when it is established:

'(A) That the directors are deadlocked in the management of the corporate affairs and the shareholders are unable to break the deadlock, and that irreparable injury to the corporation is being suffered or is threatened by reason thereof; or

'(B) That the acts of the directors or those in control of the corporation are illegal, oppressive or fraudulent; or

'(C) That the shareholders are deadlocked in voting power, and have failed, for a period which includes at least two consecutive annual meeting dates, to elect successors to directors whose terms have expired or would have expired upon the election of their successors; or

'(D) That the corporate assets are being misapplied or wasted.'

The circuit court, after hearing the evidence, dismissed the suit and from that order this appeal was taken.

The Nicolai-Neppach Co. is located in Portland. It is a close or family corporation. The business is the manufacture of lumber products such as sash, doors, cabinets and store fixtures. The business was begun in 1866 and the company was incorporated in 1887. Herbert Jackson, brother-in-law of the plaintiff, joined the company as an employee in 1928. At that time the principal shareholder was the president and general manager of the company, C. E. Cowdin. In 1931 Herbert Jackson married Eva Jackson, who was employed by the company as a stenographer and secretary to Mr. Cowdin. After her marriage she ceased her employment.

In 1945 Herbert Jackson was offered opportunity to purchase the stock of Nicolai-Neppach Co. Upon that development he consulted his brother, Arthur Jackson, who was familiar with the lumber industry, and the two of them together with Mr. Cowdin incorporated in August 1945 the Jackson Company. Five hundred shares of stock of no-par value were authorized and 51 of the shares were issued, 25 to each of the Jacksons and one to Cowdin. No further shares have been issued. The directors then elected Herbert Jackson president, Cowdin vice president and Arthur Jackson secretary and treasurer.

September 1, 1945, the Jackson Company entered into an agreement to purchase the stock of Nicolai-Neppach Co. for $180,000 payable over a term of twelve years. In October 1945 the Jackson Company changed its corporate name to Nicolai-Neppach Co.

The three years following 1945 were boom years in the construction industry and the Nicolai-Neppach Co. earned large profits, enabling it by 1949 to complete payments under the stock purchase agreement. At that time C. E. Cowdin surrendered his share of stock and withdrew from the company. Mr. Robert R. Rankin, attorney for the company, thereupon accepted this share of stock in trust for the Jacksons in order to comply with a provision of the by-laws that all members of the board of directors must be shareholders and was then elected to membership upon the board. The other two directors were Herbert and Arthur Jackson. Herbert Jackson retained the presidency. Mr. Rankin became vice president and Arthur Jackson continued as secretary and treasurer.

Herbert and Arthur Jackson jointly managed the business of the company. From 1945 onward each received a salary of $11,000 which was increased by a resolution of the board of directors in December 1949 to $13,750. Harmony apparently prevailed.

April 7, 1950, Arthur Jackson died and the plaintiff, his wife, inherited his shares of stock. In the light of that fact Rankin delivered his one share of stock, one-half to Herbert Jackson and one-half to Hazel Jackson who is now the plaintiff in this suit. Thereupon Mr. Rankin resigned from the company. At that juncture there were two vacancies in the membership of the board of directors which were filled May 18, 1950, by the election of Hazel Jackson and Eva Jackson. Herbert Jackson had assigned one share of his stock to his wife, Eva, in order to qualify her as a director. The shareholdings, which since have remained static are as follows:

Herbert Jackson 24 1/2 shares

Eva Jackson 1 share

Hazel Jackson 25 1/2 shares

Since the death of Arthur Jackson, Herbert Jackson has been the sole active manager of the corporation and the only shareholder-officer to draw a salary. Hazel Jackson, the plaintiff, served as vice president and treasurer from 1950 to 1952 and Eva Jackson during those years as secretary. At the directors meeting of December 6, 1952, Hazel Jackson yielded the office of treasurer to Eva Jackson in order to facilitate record keeping, and since that time has held only the office of vice president. In 1951 the company loaned to Hazel $8,000 to help her finance Myrtle Creek Building Supply, Inc., a company which is operated by her brother.

Dissension between Hazel and Herbert Jackson receives its first mention in the minutes of the stockholders meeting that was held December 6, 1952. The by-laws that were adopted by the Jackson Company in 1945 called for the corporation to be governed by a board of three directors, all of whom were required to be shareholders. In the 1952 meeting Mrs. Hazel Jackson (the plaintiff) assisted by her attorney, Carl Davidson, demanded that the by-laws be amended to add a fourth director, and explained that thereby her 50 per cent interest would have equal representation with that of Herbert Jackson. Robert Rankin, for the company, objected on the grounds that it was customary to have an odd number of directors, that Hazel Jackson had had no experience in company management and that it was for her benefit as well as that of the others to leave the affairs of the company in Herbert Jackson's control. The plaintiff then moved that the three Jacksons be re-elected 'with the understanding that her action was not to prejudice her request for equal representation on the Board of Directors.' The plaintiff stated 'that there was no complaint against the management or service of the president, Herbert W. Jackson, but that the request of representation was based solely on her desire for equal representation on the Board.' At the directors meeting which immediately followed the plaintiff suggested, through her attorney, that a dividend of $12,000 for the year was justified, but Mr. Jackson stated that large sums would shortly have to be spent upon repairs to the plant. Action upon the plaintiff's question was thereupon postponed until Jackson collected data upon which a sound decision could be made.

In the course of the meeting of the shareholders November 16, 1953, the plaintiff was represented by Ralph H. King and Robert S. Miller as her counsel. An amendment of the by-laws to require four directors was again proposed by her. When a vote was taken the proposal was defeated by an equal division. According to the minute book the three Jacksons then elected themselves directors for the ensuing year. However, the complaint filed by the plaintiff alleges that no election of directors occurred in 1953; its words are:

'At the postponed annual meeting of defendant held November 16, 1953, no successors to the then directors were elected by affirmative vote of the shareholder.'

The defendant's answer admits that averment. Notwithstanding that state of the pleadings, the minutes of the meeting of the stockholders that was held November 16, 1953, show the election of all three Jacksons; their words are:

'The election of directors was then called and stockholder Eva B. Jackson nominated Herbert W. Jackson and Hazel M. Jackson for directors and Herbert W. Jackson nominated Eva B. Jackson for director.

'There being no other nominations or other stockholders from whom nominations could be had and the law requiring three directors of this corporation, the three were unanimously declared elected as directors of Nicolai-Neppach Co., an Oregon corporation.'

At the meeting of the directors which followed Mr. King, on behalf of the plaintiff, proposed a dividend of $11,985. Mr. Jackson, however, stated that he 'felt some dividend should be declared, but not that much, and that he would like consideration given to an advance in salary for the reasons that had been previously cited and discussed.' Mr. King replied that 'they had a motion before the Board for dividends and that they were not going to bargain on that motion in connection with the request for increase in salary of Herbert W. Jackson.' A vote for the dividend was lost by an equally divided number. Two additional votes for reduced dividends were lost by equally divided votes, until finally agreement was reached on a dividend of $150 per...