Mooney v. Willys-Overland Motors

• Decision Date: 14 April 1952
• Docket Number: Civ. No. 1303.
• Parties: MOONEY v. WILLYS-OVERLAND MOTORS, Inc.
• Court: U.S. District Court — District of Delaware

106 F. Supp. 253

MOONEY v. WILLYS-OVERLAND MOTORS, Inc.

Civ. No. 1303.

United States District Court D. Delaware.

April 14, 1952.

James R. Morford and Thomas Cooch (of Morford, Bennethum, Marvel & Cooch), Wilmington, Del., for plaintiff.

Clarence A. Southerland and David F. Anderson (of Southerland, Berl & Potter), Wilmington, Del., for defendant.

LEAHY, Chief Judge.

This is an action for breach of contract¹ brought by James D. Mooney² against the Willys-Overland Motors, Inc., a Delaware corporation.³ Mooney is a mining, mechanical and automotive engineer whose business is industrial engineering.⁴ Some time in 1945, Mooney, then a director and vice-president of General Motors, was approached by Willys through two of its officers, Canaday and Ritter, to leave the employ of General Motors and go with Willys.⁵ After extended negotiations between Mooney and his counsel, and Canaday and Ritter for Willys, a contract dated December 26, 1945 between Mooney and Canaday was executed and in January 1946⁶ Mooney began his employment with Willys. Mooney assumed the office of President of Willys, Chairman of the Board, a director, Chairman of the Executive Committee, and a member of the Finance Committee.

Then, on May 20, 1949, Mooney terminated his relationship with Willys by an express contract which looked to a settlement of their cross differences and which had already been approved by the Board of Directors of Willys.

On August 31, 1948, prior to Mooney's departure from Willys, a stockholders' derivative action was filed in the Court of Chancery of Delaware by one Krinsky. Among defendants were Willys, certain other corporate defendants, and several named individuals, among them Mooney, Edward L. Love and Charles E. Sorensen. On November 12, 1948, another stockholders' derivative action alleging the same causes of action with the same plaintiff and the same defendants was filed in this court. Mooney was not served with process in either of those causes and did not, prior to the dismissal of the State and Federal causes, formally appear. Immediately upon learning of the Krinsky litigation, Mooney employed James B. Alley, Esq. ("Alley") of the firm of Hooker, Alley & Duncan of New York as his personal counsel.⁷ After several conferences with Mooney, Alley sent a letter dated November 29, 1948 to Mooney in which the merits of the Krinsky litigation were discussed and Mooney was advised as to any possible personal liability. Apart from his discussion of the merits of Krinsky's action, Alley wrote Mooney: "You * * * cannot be held personally liable for anything alleged in the complaint until you have been properly served."⁸

Mooney was, however, in his words, "extremely sensitive to the implications and possible consequences"⁹ of the Krinsky suit and determined "to defend vigorously" and without compromise¹⁰ the charges made against him. Mooney, I believe, had a reputation to sustain in the professional and business community. Acting on behalf of Mooney, Alley attended conferences of attorneys in New York and Toledo when policies regarding the defense of the Krinsky action were formulated and the factual data to be presented were initially discussed.¹¹ Alley's services included, inter alia, the examination of voluminous factual data, appraisals and other reports, schedules, memoranda, prospectus, corporate minutes, proxy and registration statements, notices, contracts and correspondence, in addition to studying pleadings, proposed pleadings and orders. The Krinsky litigation was dismissed upon the merits with prejudice to Willys and all of its stockholders by order of Chancellor Harrington on July 27, 1949. A similar order was entered in this court on November 21, 1949.

Not all the causes embraced in the Krinsky allegations in the various complaints were dismissed with prejudice. As to the issues presented by the second amended complaint, the Chancellor, after hearing testimony and documentary evidence, found: "(1) * * * the price paid by Willys to the defendant Willys Real Estate Realization Corporation in 1946 for the shares of stock of Wilson Foundry & Machine Company was not grossly excessive and was in fact fair and reasonable, and the plant and equipment of said Wilson Foundry & Machine Company was and has been necessary and useful to Willys; (2) the price paid by Willys to the defendant Willys-Real Estate Development Corporation in 1946 for certain real estate in the City of Toledo, Ohio * * * was not grossly excessive and on the contrary was fair and reasonable, and said real estate was and has been necessary and useful to Willys." In respect to the issues set forth in the second amended complaint, the Krinsky case was dismissed upon the merits and with prejudice to Willys and all its shareholders.

The cause of action set forth in the original and first amended complaints in Paragraphs 14 to 19 inclusive having to do with the employment by Willys of Charles E. Sorensen was dismissed with prejudice as to Krinsky but without prejudice as to Willys or its other shareholders. An amendment filed in March 1949 withdrew the cause of action based upon the Sorensen transaction. The Sorensen transaction is now the subject of a separate suit in Michigan.¹²

The Sorensen employment contract was entered into by Willys in 1944, before Mooney was affiliated with Willys. Mooney, furthermore, was not affiliated with Willys at the time of the purchase by Willys in 1945 of tools and equipment from Wilson Foundry & Machine Company. At Willys' directors' meetings, Mooney disqualified himself from voting on the purchase of either Wilson Foundry stock or the real estate from Willys-Real Estate Development Company.

On June 28, 1949, Willys wrote to Mooney referring to the pending motion to dismiss the Krinsky case and requesting "a statement from Mooney as to the approximate time and expense to which Mooney was put in connection with this case." Alley answered this letter for Mooney in July, 1949, gave Mooney's time, referred to his out-of-pocket expenses and stated also there would be expenses for Mooney's counsel but a bill had not yet been presented to Mooney since Alley was awaiting the outcome of the motion for dismissal scheduled for July 27, 1949. After the Krinsky action was dismissed, Alley submitted a bill to Mooney for professional services ($11,000) and disbursements ($586.63). Alley's bill was paid by Mooney August 19, 1949, and Mooney forwarded the receipted bill to Willys on the same day with a letter in which he stated:

"You will recall that the reimbursement of these expenses is provided for by the by-laws of the Corporation and was discussed at the time of my resignation from the Company and the matter was specifically covered in Clause 7 of the contract between Willys-Overland Motors, Inc., and myself, executed May 20, 1949."¹³

Three months passed without response by Willys to Mooney's letter until, finally, in the latter part of November, 1949, Milton McCreery, secretary of Willys, in answer to an inquiry from Alley, wrote to Mooney informing him the Board of Directors had considered Mooney's request for reimbursement and had instructed McCreery to advise Mooney "that in accordance with Article XXIII of the By-Laws of the Corporation they agreed to reimburse Mooney for reasonable payment of counsel fees incurred in the Krinsky action * * *; that, in the opinion of the Board of Directors, the Alley bill * * does not meet the requirements of the ByLaws, which provide for reimbursement of any expenses reasonably incurred."¹⁴ McCreery further wrote to Mooney that the Willys Board has requested Mooney to "give further consideration to the bill as submitted". Alley answered McCreery's letter by detailing the services he had rendered Mooney and emphasizing the reasonableness of the bill.¹⁵ McCreery's answer¹⁶ made explicit the objection of the Willys Board for non-payment of Alley's bill. McCreery wrote: "The Board of Directors of this Corporation has stated, in its opinion, the bill does not meet the requirements of the By-Laws, for the reason that the amount of the bill is unreasonable." Alley in reply reiterated his previous stand the bill is "reasonable and fair".¹⁷ McCreery acknowledged Alley's letter and said he would submit Alley's letter to the Board at its next meeting.¹⁸ On March 2, 1950, the Willys Board met and after reconsidering Mooney's request for reimbursement in the light of Alley's letters concluded there was "no basis for changing their prior opinion that the bill does not meet the requirements of the By-Laws, which provide for reimbursement of any expenses reasonably incurred."¹⁹ McCreery so informed Alley.²⁰ The reply to McCreery was the institution of the case at bar in this court on March 24, 1950, by Mooney to recover the amount he had paid to Alley for legal services in the Krinsky matter.²¹

Plaintiff grounds his claim for recovery in this action on three bases. The first is reliance upon Paragraph 7 of the May 20, 1949 agreement as a contract determinative of Mooney's right to reimbursement leaving only the question of amount open and that question circumscribed within the term "reasonable". Second, plaintiff claims at common law absent special contract or specific statute or by-law he could recover his legal expenses. In re E. C. Warner Co., 1950, 232 Minn. 207, 45 N.W.2d 388. Third, plaintiff asserts § 2(10) of the Delaware Corporation Law, Rev.Code 1935, § 2034, subd. 10, as added by 44 Del.Laws, c. 125, and By-Law XXIII of Willys passed pursuant to § 2(10) entitle the plaintiff to be indemnified. Set in juxtaposition to plaintiff's grounds, defendant argues: 1. the provisions of Paragraph 7 of the May 20, 1949 contract constitute nothing more than a reservation of Mooney's rights, if any, under Article XXIII of the by-laws and these provisions have not been waived or modified; 2. Mooney cannot be indemnified under the Delaware statute or the Willys by-laws because he does not...