Klein v. Indep. Brewing Ass'n

• Decision Date: 06 February 1908
• Parties: KLEIN et al. v. INDEPENDENT BREWING ASS'N et al.
• Court: Illinois Supreme Court

231 Ill. 594

83 N.E. 434

KLEIN et al.

v.INDEPENDENT BREWING ASS'N et al.

Supreme Court of Illinois.

Dec. 17, 1907.

Rehearing Denied Feb. 6, 1908.

Appeal from Appellate Court, First District, on Appeal from Superior Court, Cook County; Joseph E. Gary, Judge.

Bill by Henry P. Klein and others against the Independent Brewing Association and others. From a judgment of the Appellate Court reversing a decree for complainants, they appeal. Reversed and remanded, with directions.Jacob J. Kern and John A. Brown, for appellants.

Loesch, Scofield & Loesch, Joseph H. Muhlke, and Frederick Z. Marx, for appellees.

This was a bill filed by appellant Henry P. Klein against the Independent Brewing Association, a corporation, and certain persons as stockholders and officers of said corporation. The following statement made by the Appellate Court sufficiently shows the material charges of the bill and the relief prayed, also the substance of the answers to the bill and the decree of the superior court:

‘Henry P. Klein, a stockholder and also a director in the Independent Brewing Association, on October 23, 1905, filed his bill of complaint against the company and several of its officers, past and present, and one Conrad Furst, a stockholder, and prayed inter alia for the following relief: That a receiver be appointed, with the usual powers of receivers, to take possession of, hold, and dispose of, all the books and properties, equitable interests, and things in action of said Independent Brewing Association under the order of the court, and that the real estate purchased, as charged in the bill, from the defendants Leo Ernst and Otto Ernst, Jr., may be reconveyed, under the direction of the court, to said Leo Ernst, and the said defendants, except such brewing association and said Conrad Furst, and each of them, be requiredto account for and pay into the said brewing association such moneys as may be found due and owing to such association from the defendants on account of such real estate transactions, over and above the amount or amounts which may be realized from the sale thereof, under the direction of the court, and that in the meantime the three Ernsts, Leo, Otto, and Emil, be restrained from conveying, transferring, concealing, or encumbering any of the assets of said brewing association, including the real estate purchased from Leo and Otto Ernst, until the further order of the court, and for general relief. An engrossed amended bill was filed after the hearing, by leave of court, April 13, 1906, and the answers filed were allowed to stand as answers to the engrossed amended bill. On November 22, 1905, an order was entered allowing Adam Frederick, Edward C. Knuth, John Busch, A. Rohn, and Philip May to intervene, and on March 9, 1906, John Busch withdrew, and the cause was dismissed as to him. The pleadings and the proofs are voluminous. We shall therefore confine our statement and review to such limited portions, only, which we deem necessary to a decision of the case and a clear understanding of the issues involved.

‘The Independent Brewing Association was incorporated under the laws of this state February 24, 1890, with a capital stock of $500,000, divided into 5,000 shares with a par value of $100 each, for the manufacture and sale of beer, with its brewery established in the city of Chicago. Henry P. Klein was the originator of the brewery association and a director from the start, and at the time of filing the bill owned 1,135 shares of its stock. * * * September, 1896, the three Ernsts and one F. W. Boldenweck purchased a majority of the stock and went into the active and controlling management of the brewery. That the Ernsts owned between them 2,430 shares, and F. W. Boldenweck 280 shares. That William Boldenweck afterwards acquired the latter 280 shares. That Conrad Furst subsequently secured from the Ernsts 2,400 shares. That while Conrad Furst is the actual owner of the shares last mentioned, there is some agreement or understanding said to exist by which the Ernsts have the right of repurchase. The officers of the association are Leo Ernst, president, Leo E. Ernst, secretary, and Emil Ernst, treasurer, and the directors are the three Ernsts, the complainant Henry P. Klein, and his son, Joseph Klein.

‘It is charged that ‘on or about the 11th day of September, A. D. 1896, the said Emil Ernst, said Otto Ernst, said Leo Ernst, and said F. W. Boldenweck fraudulently and unlawfully entered into a conspiracy together for the purpose of wrongfully and fraudulently depriving your orator and other stockholders of such corporation other than said Ernsts, said Furst, and Boldenweck, of their rights and interest as such stockholders, and of fraudulently and unlawfully exploiting said corporation and converting its funds and assets for the benefit of said Emil Ernst, said Leo Ernst, said F. W. Boldenweck, and said Otto Ernst; that on or about the 12th day of February, 1903, said Conrad Furst acquired nominal title to about 2,400 shares of the capital stock of said corporation from said Emil Ernst and said Leo Ernst; that the said Conrad Furst has never, in person, actively participated in the affairs of said corporation, either as stockholder or otherwise, but, on the contrary, the stock of Conrad Furst has always been represented and voted by said Leo Ernst and said Emil Ernst; that in pursuit of said conspiracy said Emil Erst, said Leo Ernst, said F. W. Boldenweck, and Otto Ernst have from time to time heretofore, since September 11, 1896, unlawfully and fraudulently caused and permitted large sums of money to be paid out of the funds of such corporation to said Leo Ernst, said Emil Ernst, said Otto Ernst, said F. W. Boldenweck, said William Boldenweck, and each of them, and have purchased property with the funds of said corporation from different ones of said defendants at fraudulently excessive prices, and have from time to time paid out large sums of money from the funds of said corporation to different ones of said defendants as pretended salaries to them, as officers of said corporation, in excess of the salaries to which said defendants were from time to time lawfully entitled under the by-laws and lawful resolutions of the directors of said corporation, and are now fraudulently and unlawfully paying to said Emil Ernst, Leo Ernst, Leo E. Ernst out of the funds of said corporation, as pretended salaries to said last-mentioned defendants for respective offices now held by them, as aforesaid, large sums of money, namely, $10,000 per annum, and are, and have been since the last-mentioned date, continuously hitherto, arbitrarily, fraudulently, and unlawfully manipulating the affairs, moneys, and properties of said corporation for their own use and benefit, to the great injury of your orator in the premises.

‘The bill further charges that the Ernsts were owners of certain real estate in Chicago, or controlled encumbrances thereon, which they caused to be conveyed to the association at excessive values; that to enable this to be carried out, on October 14, 1897, they caused a resolution to be passed at a meeting of the directors authorizing the purchase of real estate necessary for the business of the association; that the resolution was fraudulent; that several pieces of property were thus acquired by the association, among others, Lincoln Turner Hall, Glen Ellyn, 579 West Twenty-Second street, 463-469 West Belmont avenue, 3452 North Clark street, 517 West Twenty-Second street, at a gross price of $122,200. All these properties were known as ‘beer stands,’ and secured for the asserted purpose of securing exclusive sales of the association beer thereon, and keeping out all others brews. The title to these several properties was taken in the name of Otto Ernst, Jr., in trust for the association, and a declaration of such trust made and delivered by said Otto Ernst, Jr., to the asso iation,and was kept by it among its papers. It is again charged that the by-laws were so changed, as a part of the conspiracy, that the officers were voted large and excessive salaries, and that the Ernsts and F. W. Boldenweck borrowed money which they did not repay, either of principal or interest; that while large profits were made no dividends were declared or paid for two years.

‘Appellants all answered, some separately, and others jointly. Every act of fraud charged was explicitly and categorically denied, also the charges of conspiracy that the real estate purchased by the corporation was either fraudulently or unlawfully acquired, or that prices paid were excessive, and averring that all such property was acquired pursuant to a resolution of the board of directors, and to meet the needs of the association's business, and to promote its welfare; denied also that illegal or excessive salaries were paid or moneys unlawfully borrowed, or that the money so borrowed was not repaid, with interest; denied all acts of misfeasance or illegal conduct charged, or that any liability rests upon them to account as prayed. The answers affirmatively charge that Henry P. Klein had both actual and constructive notice of the acquisition by the association of all the real estate set out in the bill; that he was a stockholder and director from the organization of the association to the time of commencing the suit; that he had access to all the books and papers of the association at all times; that he was present at nearly all the meetings of the stockholders and the board of directors, and received $300 a year as salary as director, although no provision therefor was made by the by-laws; that he either made or seconded the motion for the allowance of such annual salaries as were paid to the officers of the company three years prior to exhibiting his bill; and that in 1905 he voted for and assisted in the bonding of the association and the mortgaging of its brewery property and the Lincoln Turner Hall for $125,000, also for the purchase...