Long v. Norwood Hills Corp., 31435

• Decision Date: 22 May 1964
• Docket Number: No. 31435,31435
• Citation: 380 S.W.2d 451
• Parties: Charles D. LONG, (Plaintiff) Appellant, v. NORWOOD HILLS CORPORATION, (Defendant) Respondent.
• Court: Missouri Court of Appeals

Page 451

380 S.W.2d 451

Charles D. LONG, (Plaintiff) Appellant, v. NORWOOD HILLS CORPORATION, (Defendant) Respondent.

No. 31435.

St. Louis Court of Appeals, Missouri.

May 22, 1964.

Motion for Rehearing or to Transfer to Supreme Court Denied

July 21, 1964.

Edward W. Fredrickson and John P. Montrey, St. Louis, for appellant.

Leritz & Leritz, J. D. Leritz, J. L. Leritz, St. Louis, for respondent.

Jesse E. Bishop and John B. Sharpe, St. Louis, amicus curiae.

RUDDY, Acting Presiding Judge.

In this case judgment was rendered in the trial court in favor of the defendant and plaintiff appealed to the Supreme Court of Missouri. That court transferred the case to this court on the ground that it lacked jurisdiction of the appeal. See Mo., 360 S.W.2d 593.

As a prefatory statement of what this case is about, we adopt portions of the opinion of the Supreme Court of Missouri, with some changes, without the use of quotation marks.

Plaintiff, the owner of 10 shares of stock in Norwood Hills Corporation, defendant herein, brought this suit seeking to dissolve said corporation and to have the assets thereof sold by a receiver to be appointed by the court, and the proceeds distributed according to law. Defendant was incorporated Jan. 30, 1933, under the laws of Missouri relating to business companies. It was and is plaintiff's theory that from the beginning the officers and directors have operated a country club and have devoted the assets of the corporation to the enjoyment of its members, have made no conscientious effort to operate the business in a manner that would produce a profit for the corporation, and that defendant's management 'have acted, are (is) acting and will continue to act illegally, oppressively and fraudulently * * * and the corporate assets are being misapplied or wasted * * *' and that such conduct is illegal and fraudulent to the interests of the stockholders. Plaintiff claims there is no intention or desire on the part of those in control of the management of said defendant corporation to earn sufficient money to pay a reasonable dividend to the stockholders or to ever pay a reasonable dividend to stockholders. He brought this action on his own behalf and on behalf of all other similarly situated owners of shares of stock of defendant corporation. It is alleged in the answer of defendant that since its incorporation the primary purpose was the operation of a private country club known as Norwood Hills Country Club, some of whose members are not stockholders of defendant corporation. It is further alleged in said answer that the purpose, scope, nature and manner of defendant's operation has been continuously the same up to the present time and that plaintiff had full knowledge of the scope, nature and purpose of defendant's operations and that these operations were approved and ratified by plaintiff and that plaintiff acquiesced in all of the operations performed on the part of the defendant and that by reason thereof plaintiff is estopped from prosecuting his cause of action.

It is further alleged in said answer that plaintiff by his failure to prosecute with diligence the claim he now alleges is guilty of neglect and laches and is now estopped from pursuing his alleged claim.

For all practical purposes defendant was a successor to North Hills Country Club which had become insolvent. Defendant was authorized by its charter, among other things, to purchase, hold, sell, and lease real estate and 'to engage in the business of operating golf courses, club houses, swimming pools, and in any other enterprise intended for pecuniary profit or gain not otherwise herein especially provided for; and to do all things that may be properly done incidental to the foregoing purposes, and to have all the rights and privileges in the State of Missouri and in the United States and in foreign countries which accrue to manufacturing and business corporations under the laws of the State of Missouri.' There were 82 original subscribers including plaintiff, each of whom paid $100 for one share of stock in the defendant corporation. The original by-laws provided that such stock could not be transferred on the books of the corporation until it had been offered for sale to the corporation for a period of 30 days at the price for which the stock was originally issued. Prior to the repeal of this by-law in 1949, a number of the shareholders had sold their stock to the corporation with the result that the number of shares was reduced to 66.

Shortly after incorporation defendant purchased the personal property of North Hills from its receiver and entered into a lease with the Brownstone Hills Realty Company, of the real estate formerly occupied by North Hills, which lease contained an option to purchase said real estate. Since that time defendant has operated two golf courses, a club house, swimming pool, and other facilities incident to such operations. Defendant has always operated a private country club but for a number of years it permitted outsiders to play golf on one of the golf courses, known as the east course, upon payment of green fees.

In 1941 defendant exercised its option to purchase the 326 acres of land it had leased shortly after its incorporation. It has since sold approximately 15 acres but is still the owner of the remainder thereof.

The transcript of the oral testimony in this case is voluminous and the exhibits are numerous. We see no need to give a detailed account of the testimony given in this case and when the record is shorn of the numerous colloquies between counsel and between counsel and the court we think what is left is fairly summarized in the following statement of facts.

Prior to the incorporation of the defendant corporation the original subscribers to the capital stock of the defendant corporation were members of the North Hills Country Club that was operated on the real estate now owned by the defendant corporation. This club operated under a pro forma decree of incorporation and was a not for profit corporation. Plaintiff joined the North Hills Country Club in 1923. Prior to the organization of the defendant corporation the North Hills Country Club was in default on an agreement with the owners of the real estate. The North Hills Country Club was in serious financial difficulties and the membership of the club contributed sums of money to keep it going and plaintiff's contribution was between $1900 and $2500. The defendant corporation was organized to salvage the investment made by the members of the old corporation and as testified to by A. H. Stiehl, one of the Amicus Curiae, the defendant corporation was organized for the preservation of the old North Hills Country Club and to retrieve some of money advanced to that club. He described the formation of the defendant corporation as a reorganization of the North Hills Country Club. Another beginning stockholder of defendant corporation said that it was organized for the purpose of starting a new golf club after the old one had failed. One of the witnesses said that the purpose to be served by the formation of the new corporation was to take over the assets of the old corporation. In describing the transition from the North Hills Country Club to the defendant corporation, he said that he was a member of North Hills from 1921 to 1933 'when it was reorganized.'

Virtually all of the original incorporators who testified said that they were members of the North Hills Country Club and that defendant corporation was organized for the purpose of operating a country club which was to be known as the Norwood Hills Country Club. They said that the country club was never organized as a separate entity or group.

James E. Mahen was one of the original incorporators and in 1933 was the first general chairman of all committees of the new corporation. He testified that he had been a member of the old North Hills Country Club and that the new corporation was a continuation of that club. He further testified that he knew plaintiff and that plaintiff was a member of the Norwood Hills Country Club at the beginning. The minutes of the early meetings of the Board of Directors show the approval of applications for regular and for other membership in the Norwood Hills Country Club.

Plaintiff in describing the purpose of defendant corporation at the time of its organization said that the corporation was not a country club and he maintained that the country club was a separate entity, but added, that 'at the beginning we had no country club.' He said that some in the new organization operated on the theory that the new corporation was trying to follow through on the original organization but plaintiff insisted that there was a separation between the corporation and the country club. He admitted that at the time of the organization of the defendant corporation he became a member of the country club. In certain interrogatories propounded to plaintiff, when asked the date defendant first operated the country club, he answered, 'from the beginning.' And when asked, has defendant operated the country club continuously since that date, he answered, 'Yes.'

All of the original stockholders were dues paying members of the Norwood Hills Country Club and had available for their use the facilities of the corporation, viz., the golf courses, clubhouse, lockers, pro shop, swimming pool and dining room.

Many of the officers who followed the first president, together with many others who served as members of the boards of directors, testified that during their tenure of service, which covered practically the entire life of the defendant corporation, the corporation did not operate any business other than the Norwood Hills Country Club and that the officers and boards of directors did not consider the operation of any other business. The record shows the first president operated similarly. All of the officers and directors who testified said that the primary...