Knox Glass Bottle Co. v. Underwood

• Decision Date: 08 October 1956
• Docket Number: No. 40163,40163
• Citation: 89 So.2d 799,228 Miss. 699
• Parties: KNOX GLASS BOTTLE COMPANY, a Mississippi Corporation, v. C. R. UNDERWOOD et al.
• Court: Mississippi Supreme Court

Page 799

89 So.2d 799

228 Miss. 699

KNOX GLASS BOTTLE COMPANY, a Mississippi Corporation, v. C. R. UNDERWOOD et al.

No. 40163.

Supreme Court of Mississippi.

Oct. 8, 1956.

Butler, Snow, O'Mara, Sevens & Cannada, Jackson, for appellant.

Vardaman S. Dunn, Leon F. Hendrick, Wm. Harold Cox, Jackson, for appellee.

ETHRIDGE, Justice.

This is a suit in equity by a corporation against four of its former officers and directors, and against the wife and three grandchildren (and their trustees) of an officer and director, and against a partner of an officer and director, to recover large personal profits which the defendants made from leases of trucks to complainant corporation, while certain defendants were its directors and officers. It originated in the Chancery Court of the First Judicial District of Hinds County. Although the lengthy record of sixteen volumes and the briefs involve a multitude of facts and points, the pertinent controlling principles of law are well established. The chancery court rendered a decree for defendants, appellees here.

We hold that the defendants (as individuals and two as trustees), except Hester and the three minor defendants, are liable severally for the net profits received by them after the death of Roy R. Underwood, the former president of both complainant corporation and its parent company, and that the three defendants who were directors and officers during this period of time are jointly and severally liable for the profits received by all defendants, except Hester, in the manner and to the extent hereafter set forth.

I.

The complainant is Knox Glass Bottle Company, hereinafter referred to as Knox of Mississippi. It is a Mississippi corporation engaged in the manufacture and sale of glass bottles. It operates two manufacturing plants in Rankin County, Mississippi, near the City of Jackson, one plant in Palestine, Texas, and one plant in Gas City, Indiana. All of its capital stock, except five qualifying shares for its five directors, is owned by Knox Glass Bottle Company, a Pennsylvania corporation, hereinafter referred to as Knox of Pennsylvania, having its principal place of business at Knox, Pennsylvania. All of the capital stock of Knox of Pennsylvania is owned by approximately 160 to 220 individual shareholders.

Roy R. Underwood was a director and president of Knox of Mississippi from 1933, the date of its organization, until his death in an automobile accident on October 16, 1951. In 1934 Roy R. Underwood became president of Knox of Pennsylvania, and served also in that capacity until his death in October 1951. Roy R. Underwood owned slightly less than one-third of the outstanding shares of stock in Knox of Pennsylvania. He was a strong executive, experienced in the glass business, and the Board of Directors of Knox of Pennsylvania placed upon him the primary responsibility for supervising and directing the several plants in the northern states owned by Knox of Pennsylvania, and the four glass manufacturing plants owned and operated by its subsidiary, Knox of Mississippi. On March 26, 1934, the Board of Directors of Knox of Pennsylvania gave Roy R. Underwood, its president, a genearl proxy to 'represent this company and vote stock owned by this company at any shareholders' meeting called by any company in which he Knox Glass Bottle Company of Pennsylvania owned stock, and such power of attorney to continue in full force and effect until rescinded by the Board of Directors of this company.' This general proxy to vote stock of Knox of Pennsylvania was reaffirmed by its Board of Directors in 1942 and in 1947. After C. R. Underwood became president of both companies in October 1951, the Board of Directors of Knox of Pennsylvania gave him a similar power of attorney to vote the stock owned by that company.

During the period of time involved in this litigation, the defendant C. R. Underwood, a brother of Roy R. Underwood, was an officer and director of the complainant, Knox of Mississippi. Prior to the death of Roy in October 1951, C. R. Underwood was vice-president and general or plant manager of Knox of Mississippi. He was in active management and control of complainant, subject to the orders of Roy. After the death of his brother, Roy, C. R. Underwood became a director in, and the president and general manager of, both Knox of Pennsylvania and Knox of Mississippi. He resigned as president of both companies on November 26, 1953. He was removed as general manager and as a director of both companies after a proxy battle with another group of stockholders in Knox of Pennsylvania, on December 1, 1953.

The defendant E. F. Underwood is a son of C. R. Underwood. He was a director in and vice-president of complainant corporation from April 17, 1939, until his resignation in November 1953. He also served during parts of this period as treasurer, assistant secretary, and assistant general manager. E. F. Underwood was a director of Knox of Pennsylvania for a portion of the time involved in this litigation, from March to November 1953.

Another defendant and son of C. R. Underwood is J. H. Underwood, who was a vice-president of complainant corporation from March 1, 1952 until November 1953, and a director from May 1952 until November 1953. J. H. Underwood was also a trustee under a certain instrument of trust created by C. R. Underwood for the benefit of defendant Sandra Ann Underwood, the minor daughter of J. H. Underwood. E. F. Underwood was also the trustee of a trust created by C. R. Underwood for his other grandchildren, Mary Ann Underwood and E. F. Underwood, Jr., defendants, the minor daughter and son respectively of E. F. Underwood.

The defendant Mrs. Florence P. Underwood is the wife of C. R. Underwood. Defendant C. Alberta Luter is and was the confidential, personal secretary and close personal friend of the defendant C. R. Underwood. She was a director and secretary and assistant treasurer of Knox of Mississippi from July 26, 1941, until January 23, 1951. From April 4, 1934 until July 26, 1941, she was assistant secretary and assistant treasurer of complainant. The defendant W. E. Hester, Jr. was a partner of defendant E. F. Underwood, doing business under the partnership name of Hutco, which partnership, along with the other defendants, owned and leased certain motor vehicles to Knox of Mississippi. Hester was also an officer and director of Motors, Inc., a Mississippi corporation, which operates a distributorship of trucks, tractors and trailers near the City of Jackson. Motors, Inc. has been controlled by the Underwood family for a number of years. Its plant is located on property purchased from the Flowood Corporation, of which C. R. Underwood is president and C. Alberta Luter is an officer.

In brief, there are eleven defendants, as individuals and in a representative capacity. Four of them, C. R. Underwood, his sons, E. F. and J. H. Underwood, and C. Alberta Luter are former officers and directors of complainant corporation. Defendant Hester is a partner of one of the officers and directors, E. F. Underwood, and Florence P. Underwood is the wife of one of them. The other three defendants are grandchildren of C. R. Underwood, who created trusts for them into which were directed proceeds of some of the truck rentals paid by the corporation. The fathers of these minors, E. F. and J. H. Underwood, were made defendants as trustees and natural guardians of them.

The gist of this action is that during the time the Underwood family was in control of Knox of Mississippi, they and their close personal friends and associates, and members of their family, leased to the complainant corporation large trucks which were used to haul glass bottles and other related products, and other commodities on some of the back-hauls; that these officers and directors, the members of their family, and their friends and business associates, while such officers and directors occupied a fiduciary relation to the appellant, made large personal profits by leasing trucks to the corporation, in contracts wherein the said defendants represented both the corporation on one side and themselves on the other. The bill of complaint charged that such profits represented an unjust enrichment obtained by defendants in violation of their fiduciary duties to the corporation, asked for an accounting for such profits, and for a decree directing their repayment to complainant.

The principal defenses raised in the pleadings and the evidence are: (1) All of the facts in regard to the truck leases and their operations were reported to Roy R. Underwood, who was the President of Knox of Pennsylvania and Knox of Mississippi until his death in October 1951, and Roy, representing the Pennsylvania corporation, which owned all of complainant's stock, had established a definite policy that the company should not make capital investments by buying trucks but should lease them, and C. R. Underwood and the other defendants who were officers and directors were acting pursuant to this direction by the executive and policy-making head of both companies; (2) Knox of Pennsylvania, through Roy, its directors and stockholders, had full knowledge of all the facts concerning the truck-leasing contracts, by regular, periodic 'clipper reports' of trucking operations made by Knox of Mississippi to the President of Knox of Pennsylvania, and the directors and stockholders of Knox of Pennsylvania, acting through their President Roy R. Underwood, authorized such leases, and ratified and approved them; (3) After Roy's death in October 1951, when C. R. Underwood became president and a director of both companies, serving in those capacities through November 1953, the Pennsylvania company was in bad financial condition and used all of complainant's available capital to finance investments in the northern plants of the parent company; therefore, complainant corporation was never able to make capital investments in trucks, and ...