Mayer v. Adams

• Decision Date: 17 October 1961
• Citation: 40 Del.Ch. 94,174 A.2d 313
• Parties: Lillie S. MAYER, Plaintiff, Appellant, v. Kenneth S. ADAMS, H. M. Addinsell, F. W. Begrisch, T. S. Gay, P. J. Parker, Paul Endacott, Rayburn L. Foster, A. M. Hughes, J. L. Johnston, W. W. Keeler, H. E. Koopman, Stanley Learned, C. R. Musgrave, Phillip R. Phillips, W. C. Smoot, B. F. Stradley, R. W. Thomas, C. P. Dimit, Don Emery, G. G. Oberfell, F. E. Rice, Charles A. Lemp, Eugene E. Du Pont, Phillips Petroleum Company, Kenneth S. Adams, Jr., and Ada Oil Company, Inc., Defendants, Appellees.
• Court: United States State Supreme Court of Delaware

Page 313

174 A.2d 313

40 Del.Ch. 94

Lillie S. MAYER, Plaintiff, Appellant, v. Kenneth S. ADAMS, H. M. Addinsell, F. W. Begrisch, T. S Gay, P. J. Parker, Paul Endacott, Rayburn L. Foster, A. M Hughes, J. L. Johnston, W. W. Keeler, H. E. Koopman, Stanley Learned, C. R. Musgrave, Phillip R. Phillips, W. C. Smoot B. F. Stradley, R. W. Thomas, C. P. Dimit, Don Emery, G. G Oberfell, F. E. Rice, Charles A. Lemp, Eugene E. Du Pont, Phillips Petroleum Company, Kenneth S. Adams, Jr., and Ada Oil Company, Inc., Defendants, Appellees.

Supreme Court of Delaware.

Oct. 17, 1961.

Daniel O. Hastings and Clarence W. Taylor, Hastings, Taylor & Willard, Wilmington, for appellant.

James M. Tunnell, Jr. and William S. Megonigal, Jr. (of Morris, Nichols, Arsht & Tunnell), Wilmington, for appellee Ada Oil Co.

Robert H. Richards, Jr., and Stephen E. Hamilton, Jr. (of Richards, Layton and Finger), Wilmington, for appellee Phillips Petroleum Co. and remaining appearing defendants.

SOUTHERLAND, Chief Justice, WOLCOTT, Justice, and CAREY, Judge, sitting.

SOUTHERLAND, Chief Justice.

This is a minority stockholder's suit against directors of Phillips Petroleum Company and Ada Oil Company seeking relief for alleged wrongs against Phillips committed by defendants.

For an understanding of the questions raised by this appeal, a somewhat detailed history of this litigation is required.

The complaint was filed April 23, 1956. Motions to dismiss, or to strike, or to make the allegations more definite and certain, were promptly filed. One ground in support of the motions to dismiss was failure to comply with the requirements of Rule 23(b), Del.C.Ann., requiring a statement of efforts made by plaintiff to secure action from the directors and stockholders. These motions were ultimately granted on the latter ground, the Vice Chancellor holding that the allegations of the complaint were insufficient to excuse plaintiff's failure to make efforts to secure stockholder action. See opinion of June 14, 1957, Del.Ch., 133 A.2d 138. Plaintiff appealed. We reversed, holding that if the complaint charged fraud, no demand upon stockholders was necessary. Del., 141 A.2d 458.

We also considered a contention of defendants that in any event the statute of limitations barred any action against four of the directors who had not been members of the board during the three years prior to the filing of the suit. Defendants' contention was that no actual fraud was charged, and hence the case was in the concurrent jurisdiction of law and equity, and the statute of limitations applied. Plaintiff insisted that Bovay v. Byllesby & Co., 27 Del.Ch. 381, 38 A.2d 808, 174 A.L.R. 1201, applied because the directors were guilty of fraud.

We did not resolve this question. We pointed out that the complaint, as to these directors, was uncertain and ambiguous. We noted that a defendants' motion to require more specific allegations was pending, and said:

'Until precise facts shall have been developed, by pleading or proof, showing the prescise nature of the wrongs charged against these four directors, it is neither feasible nor desirable for this Court to deal with the question of the application of the statute of limitations. Any attempt to do so would involve us in conjectural interpretations of the complaint.' 141 A.2d 467.

After our opinion came down defendants on July 3, 1958 filed amended motions to strike or for a more definite statement. On July 15 the Vice Chancellor filed a memorandum granting the motions. He said:

'Not only the defendants but the Court must have more precise information on dates, places and events in order to be able to decide to what extent plaintiff has stated causes of action cognizable in this Court for the periods covered in the complaint.'

On October 7th he entered an order providing in part:

'(1) The plaintiff may file limited interrogatories to obtain precise information on dates, places and events for the purpose of filing a more definite statement in respect to paragraphs 13, 14, 15 and 16 of the Complaint as hereinafter provided.

'(2) Upon the answers to interrogatories filed pursuant to paragraph (1) hereof, plaintiff shall file a more definite statement in respect to paragraphs 13, 14, 15 and 16 of the Complaint.'

On November 25 plaintiff filed numerous interrogatories addressed to various defendants, and on January 16, 1959, defendants filed objections.

On April 10th the Vice Chancellor filed a letter opinion. Referring to his order of October 7th he noted that leave to file interrogatories had been granted for the narrow purpose of assisting plaintiff to file a more definite statement of claim; and that he had granted such leave over vigorous objections because 'it seemed a sensible way to get at a critical element in the case, namely, the timeliness of plaintiff's suit * * *'. He ruled that plaintiff, misconceiving the scope of his ruling, had filed numerous interrogatories designed to build up evidence for trial. He said:

'What the Court is interested in at this juncture is the fixing of dates, places, and events so that the sufficiency of the complaint as a pleading may be tested. Defendants should not be subjected to pre-trial discovery until it appears that they must go to trial.'

Conceding that some of the interrogatories were within the scope of his order, he left it to the plaintiff to select them. He said:

'If plaintiff will revise and limit her interrogatories so that they fall within the narrow limits fixed in the Court's order of October 7, 1958, this long-pending case, which complains of action dating back to 1947, will move along more rapidly.'

On April 21st he entered an order sustaining the objections to the interrogatories.

We interrupt this chronology to comment that the privilege accorded to plaintiff of using discovery to assist in drafting a complaint was an unusual one, and we see no reason why plaintiff should not have complied with the Vice Chancellor's suggestion and pressed for answers to the interrogatories directed to the limited issues delineated by the court. But the plaintiff instead of so doing elected to start afresh.

On June 11th plaintiff filed an amended complaint. The list of alleged wrongful acts (or, rather, types of such acts) was expanded, and a charge of conspiracy was eliminated. But the amended complaint is, in our opinion, subject to the same objections of vagueness in the charges of the alleged fraud, and of ambiguity in respect of participation of the directors therein. Paragraph 12, as in the former complaint, alleged ownership of Ada stock by Kenneth S. Adams, the alleged dominating director of Phillips, but evidence adduced disclosed no such ownership.

On July 17th the defendants (as might have been expected) filed motions to dismiss, to strike, and for a more definite statement of claim. One of the grounds of the motion to dismiss was the failure to comply with the provisions of Rule 23(b).

After a long delay the motions were argued on October 27, 1960. On January 31, 1961, the Vice Chancellor filed his opinion, Del.Ch., 167 A.2d 729. He recited briefly the proceedings above outlined and, in effect, came to the following conclusions:

(1) That the allegations respecting domination and control of the Phillips Company were insufficient.

(2) That because of the staleness of the claims the defendants were entitled to the factual details of the alleged frauds, since, if the suit was to recover monetary damages within the concurrent jurisdiction of equity, they had the right to rely on the defense of the statute of limitations. Glassberg v. Boyd, 35 Del.Ch. 293, 116 A.2d 711.

(3) That the amended complaint failed to comply with Rule 9(b) requiring fraud to be pleaded with particularity, and hence failed to state a cause of action based on such actual fraud as makes directors liable as express trustees within the rule of Bovay v. Byllesby, supra.

He indicated that if plaintiff could not state such a cause of action, it would have to be dismissed at least as to transactions occurring prior to the date when the bar of the statute of limitations arose. However, he gave the plaintiff a further opportunity by way of a more definite statement to state a cause of action which defendants might be required to answer. He accordingly granted the motions 'for a more definite statement of designated paragraphs', i. e., paragraphs 10 to 16 inclusive and 26 to 29 inclusive.

An argument followed upon the form of the order. On April 14, 1961, the order appealed from was entered. It provides:

(1) Paragraph 12 of the Complaint is stricken. (This is the charge that Kenneth S. Adams of Phillips owned stock in Ada.)

(2) The Phillips defendants' motion for a more definite statement of the designated paragraphs is granted.

(3) Plaintiff may file an amendment to the complaint within 60 days.

(4) If such amendment be not filed the complaint shall without further notice be dismissed with prejudice.

Plaintiff elected not to amend the complaint, and this appeal followed.

Plaintiff assails the Vice Chancellor's findings and his order in several respects, but at bottom her real point is that the complaint on its face charges frauds by corporate fiduciaries within the rule of Bovay v. Byllesby, supra. Such an action, says plaintiff, is not barred by the statute of limitations, and it was therefore error to compel plaintiff to supply facts touching an inapplicable issue.

Does the amended complaint charge fraud of the kind found in the Byllesby case, i. e., a case in which directors profit financially at the expense of their corporation?

We think not. Plaintiff makes a somewhat elaborate argument in support of her contention, but it is quite unconvincing. The important charges of wrong-doing are set forth in Paragraph 10 of the...