Kullgren v. Navy Gas & Supply Co.

• Decision Date: 15 March 1943
• Docket Number: 15121.
• Citation: 110 Colo. 454,135 P.2d 1007
• Parties: KULLGREN et al. v. NAVY GAS & SUPPLY CO. et al.
• Court: Colorado Supreme Court

135 P.2d 1007

110 Colo. 454

KULLGREN et al. v. NAVY GAS & SUPPLY CO. et al.

No. 15121.

Supreme Court of Colorado, En Banc.

March 15, 1943

Rehearing Denied April 5, 1943.

Error to District Court, City and County of Denver; Floyd F. Miles Judge.

Action by Nels A. Kullgren against the Navy Gas and Supply Company and others to void a voting trust agreement in relation to named defendant's stock, to restrain another defendant from exercising voting rights thereunder, and to restrain named defendant's directors from issuing 18 shares of treasury stock and to restrain the abolishment of cumulative voting. To review an adverse judgment, Nels A. Kullgren and others bring error.

Judgment for costs reversed and cause remanded.

William H. Scofield, Robert L. McDougal, Earle F Wingren, and Byron G. Rogers, all of Denver, for plaintiffs in error.

Van Cise, Robinson & Charlton and Stewart A. Shafer, all of Denver, for defendants in error, Thomas, Kennedy, Dorsey, and Moffitt.

HILLIARD Justice.

A suit by plaintiff in error Kullgren, a minority stockholder, to void a voting trust agreement in relation to stock in defendant in error Navy company, to restrain defendant in error Thomas from exercising voting rights thereunder, to restrain the directors of the Navy company from issuing eighteen shares of stock of that company to defendant in error Moffitt in exchange for fifty shares in defendant in error Grand company, and to restrain the abolishment of cumulative voting. Originally, Kelly, Ingersoll and Gorden, the other plaintiffs in error, were defendants, but at their first appearance in the suit they made common cause with plaintiff Kullgren, and thenceforth were regarded as having like status. Their holdings in the Navy company, plus those of Kullgren, exceed, and at all times important to our inquiry have exceeded, the total of the holdings of all other stockholders in that company. Other than as to the abolishment of cumulative voting, restrained below, judgment was adverse to the suit.

Preliminary to examination of the record otherwise, it is informing to state that the relief which finally was denied below, was denied there earlier when a temporary restraining order was sought. February 20, 1942, application to that end having been made here in the matter, we entered a temporary restraining order for the purposes prayed, to continue until our further order. June 11, 1942, we modified the order so that the directors of the Navy company, proceeding Before August 5, 1942, the expiration date of the voting trust, and on their theory that they had authority in the premises, might hold a directors' meeting for the purpose of acting on the proposition of Moffitt to exchange fifty shares of Grand company stock for eighteen shares of the Navy company, subject, as Before, to our further consideration and order. In furtherance of our active control in the premises, an added condition was, that if the directors acted pursuant to such permission, and favorably to the proposal, any certificate of stock issued to Moffitt, together with a certified copy of the minutes of the meeting of directors, and of the stockholders, if one were held, were to be deposited with out clerk.

June 15, 1942, proceeding pursuant to leave in the circumstances stated, a meeting of the directors of the Navy company was held, and at such meeting a resolution was passed by the votes of directors Thomas, Kennedy and Dorsey (of defendants in error), director Mullin (of plaintiffs in error) voting contra, to the effect that the Navy company issue to Moffitt eighteen shares of its treasury stock in exchange for fifty shares owned by him in the Grand company. Deposit of the certificate and minutes was made as per our order. July 17, 1942, a meeting of the stockholders of the Navy company was held, the purpose being, as announced by defendant in error Thomas, president of the company (although he and the other proponents urged then, as throughout they have insisted, power to that end was vested in the directors), to pass upon the exchange of stock previously made by the board of directors of the Navy company, as already outlined. At the stockholders meeting, all, except Kelly, represented by proxy, were present in person. Thomas, assuming to act on authority of the voting trust, ruled that personally the stockholders held for voting purposes, shares as follows: Dorsey 1, Gorden 1, Ingersoll 1, Kelly 1, Kennedy 1, Kullgren 22, Mullin 1, Thomas 33, or 61 shares, and that he, as voting trustee, for the like purpose, represented the remaining shares of stockholders as follows: Dorsey 8, Gorden 21, Kelly 32, Kennedy 32, Mullin and Ingersoll 3, or 96, making a grand total of 157 shares. Also, subject to our final decision, Thomas, holding Moffitt's proxy, ruled that he could vote the eighteen shares issued to Moffitt in manner stated.

Kelly, by his proxy, enjoying the support of all Navy stockholders other than Dorsey, Kennedy and Thomas, objected to the procedure being followed by Thomas, challenged his authority to represent other than himself on the question presented, and demanded to the effect that all stockholders (the objecting ones in particular) be permitted to vote their own shares of stock, that is to say: Kelly 33, Dorsey 9, Gorden 22, Ingersoll 1, Kennedy 33, Kullgren 22, Mullin 1, Ingersoll and Mullin 3, Thomas 33, or 157 shares, and that the exchange of stock with Moffitt be not approved by the stockholders, the objection being variously set forth. On the theory that Thomas, as trustee, the owners of a majority of the shares of the Navy company present and objecting notwithstanding, had power to that end, the exchange was approved by a vote of 131 to 26, or, assuming the legality of the Moffitt issue, 149 to 26. On the basis of stockholders voting their own stock on the question (the eighteen shares issued to Moffitt disregarded), the vote was 75 shares in favor thereof, as follows: Thomas 33, Kennedy 33, Dorsey 9, and 82 shares against it, as follows: Kelly 33, Gorden 22, Ingersoll 1, Kullgren 22, Mullin 1, Ingersoll and Mullin 3. A certified copy of the minutes of the foregoing stockholders meeting was deposited here. It is noted that until the occasion just discussed, Thomas had never employed the voting trust other than to elect directors of the Navy company, and at no time, apparently, had it been necessary for him to use it even for that purpose.

Before it became necessary for the court to consider or enter orders in the suit of Kullgren, a minority stockholder, it became a suit by majority stockholders, as we have seen, all joining in Kullgren's claim that the Navy directors were without authority to exchange treasury stock of the Navy company for Grand company stock privately owned, as threatened, and on further predicate, Kullgren joining the others therein, that, regardless of the claimed authority under which the directors fain would proceed, the majority holders of shares of Navy company stock, declaring in that capacity by formal writing admitted in evidence as an exhibit, and by oral testimony at the trial, to the knowledge of all stockholders and directors of that company, and months Before the attempted consummation of such exchange of stock, had voiced their opposition thereto and renounced it.

Earlier history is, that, December 9, 1931, the stockholders authorized the directors to purchase nineteen shares of its stock previously issued, at $5,000 per share, or $95,000, and 'to hold the same in the treasury subject to such sale or other disposition of said stock so purchased, or any portion thereof, as you may hereafter determine.' The purchase was concluded at the price mentioned, $20,000 of funds in hand and $75,000 borrowed from a bank being employed in the matter. To secure the bank loan all the remaining stockholders (all except Moffitt being those here) pledged their individual stock as well as the newly acquired nineteen shares. In 1936, the bank having been fully paid, all pledged stock was surrendered. The nineteen shares were placed in the Navy company treasury. The eighteen shares involved in the questioned issue to Moffitt are of the nineteen shares.

The Grand company, fifty shares of which Moffitt proposes to exchange for eighteen shares of the Navy company, has a total stock issue of one hundred eighteen shares, sixty-eight shares of which the Navy company owned prior to the attempted acquisition of the additional fifty shares involved, and continues to own them. Thomas is president of the Grand company, and, other than Moffitt, a director thereof, the directorate of that company is of the directors of the Navy company.

From the time of the purchase of the nineteen shares by the company, although prior thereto the Navy company had paid dividends, and until the bank loan of $75,000 had been discharged, accomplished in 1936, none was paid. A dividend was paid in 1937, but none had been paid since. Expressed otherwise, prior to 1931, on a stock...