Johnson v. Avery, 11371

• Decision Date: 16 March 1966
• Docket Number: No. 11371,11371
• Citation: 400 S.W.2d 825
• Parties: W. Dave JOHNSON, Appellant, v. C. N. AVERY, Jr., et al., Appellees. . Austin
• Court: Texas Court of Appeals

Page 825

400 S.W.2d 825

W. Dave JOHNSON, Appellant, v. C. N. AVERY, Jr., et al., Appellees.

No. 11371.

Court of Civil Appeals of Texas.

Austin.

March 16, 1966.

Rehearing Denied March 30, 1966.

McKay & Avery, John J. McKay, Charlie D. Dye, Austin, for appellees.

PHILLIPS, Justice.

This suit arises out of a conflict of jurisdiction between two district courts in a controversy involving the same subject matter.

Appellant, W. Dave Johnson, filed suit in the 53rd Judicial Court of Travis County, Texas, against one of the appellees, C. N. Avery, Jr., who had previously filed a suit concerning the identical subject matter against the appellant in the 126th Judicial District Court of Travis County, Texas.

Appellee, C. N. Avery, Jr., filed a plea in abatement in the second case asserting the pendency of the prior suit in the 126th District Court. In opposition to this plea, appellant asserted that appellee fraudulently induced appellant's attorneys to delay the filing of appellant's suit in order that appellee could file his first thus gaining the valuable right for himself of opening and closing the evidence and arguments at trial.

The 53rd District Court found that appellant's attorneys had been fraudulently induced to delay the filing of appellant's suit and accordingly denied appellee's plea in abatement and ordered the parties to trial on the merits of the case.

Subsequent to the hearing on the plea in abatement and the order of the 53rd District Court, the 126th District Court, after a hearing lasting nine days, issued a temporary injunction enjoining appellant and his counsel from taking any further action in the 53rd District Court stating that the injunction was issued without prejudice ro defendant and his attorneys to proceed in the cause and on appeals from the cause, 'as permitted by law, the rules of procedure and evidence, and to litigate, defensively or affirmatively in this cause, such bona fide causes of action if any they have, as against plaintiffs, arising out of the controversy between the parties thereto.'

Appellant is here on appeal from the order of the court which granted the temporary injunction.

We affirm the judgment of the District Court and sustain its order granting a temporary injunction.

I.

The injunctive proceedings before us were supplementary or auxiliary to the main case filed June 14, 1965 by C. N. Avery, Jr. et al against appellant in the 126th District Court seeking (among other relief) a permanent injunction against appellant to enjoin him from continuing a course of harassment and threats against appellees described in appellees' petition below as 'vexatious, oppressive and ruinous litigation, all without foundation and solely to harass, annoy and wreck malice upon plaintiff Avery and his family. For these reasons injunctive relief herein will be sought under the protective and equitable powers of the Court which are here invoked.'

As we stated above, the court heard the phase of the case before us for nine days. The record is extensive and well developed for present purposes. We can only present a brief summary of the evidence here.

Appellant Johnson, his father before him, and his family, as of 1962, owned the controlling stock interest in a local company, Texas Quarries, Inc. This consisted approximately of 3,206 shares, or about 60% Of the company.

Of the company's 5,276 shares outstanding the other 40% Of the stock was owned by some 26 stockholders. Of this group of minority stockholders, the appellees herein, C. N. Avery, C. N. Avery, Jr., Robert L. Phinney and wife, Thomas E. Nelson, Jr., and Lewis N. White owned approximately 650 shares; Avery, Jr. owned 35 shares. The largest shareholder of the Avery family group was T. E. Nelson who owned 330 shares.

Appellant was also the sole stockholder of another company, West Texas Stone Company. None of the other Texas Quarries' stockholders owned any of its stock. None of the other stockholders in Texas Quarries were either directors of or officers of West Texas Stone, save appellant Johnson, and he, his wife, and one P. L. Brady, III were its directors. Both Texas Quarries and West Texas Stone were in similar businesses of quarrying limestone.

Appellant became president of Texas Quarries in 1953. Its directors in 1962 were appellant, Mr. C. H. Kasch, (deceased at time of trial of this case), Kenneth McCalla, C. N. Avery, Sr., and C. N. Avery Jr. C. N. Avery, Jr.'s. law firm were attorneys for Texas Quarries.

Unknown to the Averys, appellant, after becoming president of Texas Quarries in 1953, began a course of conduct whereby he caused checks to be drawn on that company payable to his wholly-owned company, West Texas Stone. By the year 1962 these withdrawals had accumulated to approximately $151,000.00.

To keep the books balanced, appellant had these withdrawals carried as 'accounts receivable' on the books of Texas Quarries. On the books of his sole-owned West Texas Stone Company, he carried these sums as 'paid in surplus.'

Appellant never reported this practice to the other directors but Directors Kasch and McCalla knew about appellant's conduct concerning the funds of Texas Quarries, inasmuch as one of them was treasurer and the other manager of the company.

Under date of May 29, 1962, Kasch and McCalla wrote appellant a 'personal and confidential' letter, which, among other things, expressed their concern for the affairs of the company; their concern for his use of the company assets for purposes foreign to its best interests, pointing out that he had obtained $150,000 cash advances for his West Texas Stone Company; that this latter company had use of Texas Quarries' equipment valued at $40,000; that he charged to his personal drawing account over and above his salary, some $14,700; that West Texas Stone had sold Texas Quarries some of its bonds, and that he was depleting Texas Quarries' assets at the rate of approximately $5,000 a month. He was reminded of his fiduciary duties as a director, and it was pointed out to him that the company was in such dire condition that it might not be able to recover therefrom, and that his handling of company affairs 'is highly improper.' The Averys were not advised of this letter or of the situation.

Appellant also admitted that Texas Quarries banked at The American National Bank, and that he knew it was receiving financial statements from time to time which described these funds he had transferred to be 'accounts receivable.'

In the letter of May 29, 1962, appellant was also informed by Kasch and McCalla that they were sure that if the bank knew of these acts, it would not extend additional credit and its notes would 'very likely be called.' Nevertheless, appellant did not change his methods, and he admitted that he had never revealed to Avery, Jr. how he had handled the company's funds.

Finally, in early September, 1962, Kasch and McCalla brought a copy of their letter of May 29th to appellee Avery, Jr., informing him of appellant's mishandling of the Texas Quarries affairs and conferring with him as to what should be done. He informed these men that immediate action to stop these 'advances' should be taken, and that The American National Bank should be immediately notified concerning the misrepresentations made to them in the company's financial statements.

As of this time, Texas Quarries carried a $75,000.00 unsecured note with The American National Bank. The bank's officers had, from time to time, discussed the financial condition of Texas Quarries with Avery, Jr., and he had given them his opinion that the company was a good risk. He also was aware that the bank had relied on the financial statements furnished it. Neither Johnson, his father before him, nor anyone else had ever informed Avery, Jr. of this transferring and appropriation of the company funds, and when Kasch and McCalla did reveal the situation to him, and asked his advice, they told him the company was in dire condition. They also told him the company had to have additional loans. Acting as attorney for the company and as a member of its board of directors, Avery's advice was that they discuss this matter with the bank at once, and Kasch, McCalla and Avery having so agreed, did go to the bank and did discuss the situation with various bank officers.

The bank was displeased with this situation and the bank's officers had various further discussions with Avery, Jr. The bank's position was that if Johnson remained as president of the company the bank did not wish to do any further business with it and would refuse it further credit. Further, it was the position of the bank that Avery, Jr. was the only other person sufficiently familiar with the company's affairs who would be acceptable to the bank as company management if the bank was to try to help pull the company through its bad condition and help get it straightened out. Furthermore, the bank made it clear to Avery that he was to inform the others of the bank's views, and this he did.

The directors were also of the opinion that Johnson should make restitution for his misappropriation of the company funds, and give the company a West Texas Stone company note, guaranteed by him, and secured by 888 shares of Texas Quarries stock. Appellant Johnson presided at a directors' meeting on September 6, 1962, where he agreed to do this.

Eventually, at the bank's continued insistence, at a further directors' meeting held November 13, 1962, Johnson resigned as president. Avery, Jr. was elected to that position, and Johnson was given a 'leave of absence' with pay. As Avery explained, his family had known appellant and his family for years, that appellant's aunt had married Mr. Avery, Sr., and no one had any desire to spread around or publicize the acts of Johnson or the condition of the company; that there was an understanding with Johnson about his taking a leave of absence and Avery's taking over temporary management and that the minutes...