Kelley v. Hansen, 5245.

• Citation: 254 F.2d 99
• Decision Date: 14 April 1958
• Docket Number: No. 5245.,5245.
• Parties: Frank H. KELLEY et al., Defendants, Appellants, v. Otto HANSEN et al., Plaintiffs, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)

254 F.2d 99 (1958)

Frank H. KELLEY et al., Defendants, Appellants, v. Otto HANSEN et al., Plaintiffs, Appellees.

No. 5245.

United States Court of Appeals First Circuit.

April 14, 1958.

Robert W. Meserve, Boston, Mass., with whom John R. Hally, Nathan Newbury III, John A. Canavan, Jr., and Nutter, McClennen & Fish, Boston, Mass., were on brief, for appellants.

Frank L. Kozol, Boston, Mass., with whom Sidney Werlin and Friedman, Atherton, Sisson & Kozol, Boston, Mass., were on brief, for appellees.

Before MAGRUDER, Chief Judge, and WOODBURY and HARTIGAN, Circuit Judges.

MAGRUDER, Chief Judge.

This is an appeal by the defendants below from a final judgment for the plaintiffs in the sum of $250,000, in accordance with a jury verdict.

An amended complaint in two counts was filed by the plaintiffs on May 4, 1955, in the United States District Court for the District of Massachusetts. The plaintiffs were Otto Hansen and Frederick J. Raskopf, citizens of New Jersey, and Herbert Moore, a citizen of New York. The named defendants were Frank H. Kelley and Walter R. Graham, trustees of Republican Daily News Employees Beneficial Fund, Paul F. Craig and John A. Mannix, trustees of Springfield Union Employees Beneficial Fund, Mary E. Gallagher, Sidney Cook, all citizens of Massachusetts, and Valley Trust, Inc., a Massachusetts corporation, which was a nominee of the two pension funds and was apparently set up solely for tax purposes. Cook disappeared from the case upon a directed verdict in his favor based on plaintiffs' opening statement. In the course of the proceedings, discontinuances against Gallagher and Valley Trust, Inc., were filed and allowed. This left as defendants in the case, subject to the eventual adverse judgment, the four named individuals who served as trustees of the aforementioned newspaper employees pension funds.

The first cause of action was predicated upon an alleged oral contract entered into on October 4, 1948, between the plaintiffs and the defendants through their agent, one Sherman H. Bowles, since deceased, who was the publisher, and the dominant factor in the two Springfield newspapers, the Republican Daily News and the Springfield Union. The contract related to complicated transactions involving the shares of stock in Alliance Manufacturing Company, an Ohio corporation; and defendants were alleged to have agreed that, upon any sale of said stock, the plaintiffs were to receive the sum of $169,000 "together with a reasonable share of the profits made upon such sale", wherefore the demand of the first cause of action was that judgment be entered against the defendants "in the total amount of $169,000 plus such share of the profits on said sale as the court shall determine, together with interest and costs." The second cause of action was like the first, except that the plaintiffs here omitted any allegation that the defendants had promised to pay a reasonable share of the profits, and judgment was demanded only "in said total amount of $169,000 together with interest thereon from September 1, 1954, plus their costs."

For an understanding of the case it is necessary to recite certain background negotiations between the plaintiffs and Sherman H. Bowles. Hansen, who was an accountant, an investment counselor, and a promoter of business enterprises, became interested in Alliance Mfg. Co. in 1946. Together with his associates and co-plaintiffs, Messrs. Raskopf and Moore, he had discussions with Bowles on the subject of the Ohio corporation; and according to plaintiffs' testimony Bowles proposed that they go into the purchase, on a fifty-fifty basis, of the entire capital stock of 50,000 shares for the price of $1,800,000, or $36 per share. An agreement for the purchase of the stock was entered into on May 27, 1946. Subsequently, due to various disagreements, Bowles withdrew from the deal, and the plaintiffs had to make new arrangements for financing the purchase. Plaintiffs themselves acquired 18,000 shares, for which they advanced in cash the sum of $148,000, and the other 32,000 shares were acquired by various persons whom the plaintiffs had interested in the proposition. Plaintiffs also borrowed $500,000 from the Union Bank of Commerce in Cleveland, Ohio, on a demand note secured by deposit of their 18,000 shares plus an additional 9,800 shares which had been purchased by other persons whom plaintiffs had secured.

In the ensuing two years plaintiffs were unsuccessful in reselling the business and in paying off the loan from the bank, which they had only succeeded in reducing in the amount of $21,000. They were faced with pressure by the bank for further substantial reductions, and some of the owners of the pledged 9,800 shares were becoming restive. Plaintiffs had received a single firm offer for the stock, from one Frost, at $36 a share. But this did not appeal much to them, for one reason because it would involve no profit to them and their associates. Against this background Bowles re-entered the picture.

During the summer of 1948 Hansen met with Bowles in New York City on several occasions. According to Hansen's testimony, Bowles advised against the plaintiffs' acceptance of Frost's offer at $36 a share, and suggested, rather, that they would do better to deal with Bowles and the interests for which he spoke.

In view of the testimony offered by the plaintiffs, the jury were warranted in finding, and they did so find, that an oral agreement was reached between the plaintiffs and Bowles, on behalf of defendants, in Cleveland, Ohio, on or about October 4, 1948. Under this agreement, Bowles undertook to provide for picking up the bank loan, by which arrangement the interests represented by Bowles were to take over the 18,000 shares owned by the plaintiffs and to return the 9,800 pledged shares to their owners or to pay for the same, and the plaintiffs agreed to continue aiding in the operation of Alliance Mfg. Co. for at least a year in order to see whether its profitable operations could be enhanced. If the company proved to be unsuccessful, the plaintiffs would lose the $169,000 which they had already invested in the purchase of the shares of stock. If, on the contrary, it was successful and was sold at a profit, the plaintiffs would recover their $169,000 plus a reasonable share of the profits made upon such resale. Such was the substance of the oral agreement.

In August of 1948 the three plaintiffs had sent a letter to the Union Bank of Commerce which indicated that arrangements had been made for the payment of their indebtedness by Valley Trust, Inc., which letter also authorized the bank upon such payment to transfer the pledged 27,800 shares to whomever Valley Trust, Inc., might designate. Subsequently, Valley Trust, Inc., arranged for the balance of the indebtedness in the sum of $479,000 to be paid off by the payment of $79,000 in cash from the two pension funds, plus a loan of $400,000 from the Union Bank of Commerce secured by other securities out of the portfolio of the pension funds.

In September, 1948, Valley Trust, Inc., entered into agreements with the numerous holders of the 9,800 pledged shares. These agreements recited that in consideration of the procurement by Valley Trust, Inc., of the release of the 9,800 shares from the pledge to the bank and an undertaking to pay the holders thereof either in cash or to tender them certificates for the stock, Valley Trust, Inc., should have control of the 9,800 shares for at least a year, and that upon receipt of either $36 a share or a certificate for the stock, such holders should release the plaintiffs from all liability arising out of the original loan transaction.

After Valley Trust, Inc., by the foregoing arrangement discharged the original loan by the bank, the treasurer of the Springfield Union, one Mozley, went with Alliance Mfg. Co. as executive vice president, and Bowles and other associates of his went on the board, eventually replacing the plaintiffs. Under this new management the company was revitalized, dividends on its stock increased, and the value of the stock rose. In the latter part of 1954 the two pension funds sold out their holdings in Alliance Mfg. Co. at a large profit which, exclusive of the extensive dividends which had been received, amounted to $1,681,000 on the 18,000 shares formerly owned by the plaintiffs.

On this appeal appellants urge again, as they did below, that no judgment at all should have been allowed in favor of the plaintiffs on the alleged oral contract, under the...