News-Journal Corp. v. Gore

• Decision Date: 13 May 1941
• Citation: 147 Fla. 217,2 So.2d 741
• Parties: NEWS-JOURNAL CORPORATION et al. v. GORE.
• Court: Florida Supreme Court

2 So.2d 741

147 Fla. 217

NEWS-JOURNAL CORPORATION et al. v. GORE.

Florida Supreme Court

May 13, 1941

Rehearing Denied June 18, 1941.

Appeal from Circuit Court, Volusia County; C. E Chillingworth, judge.

Green & West, of Daytona Beach, for appellants.

McCune Hiaasen & Fleming, of Fort Lauderdale, for appellee.

THOMAS, Justice.

In 1928, Julius Davidson and his son, Herbert M. Davidson, became the owners of six hundred shares of the thousand shares of stock then outstanding of News-Journal Corporation, which was engaged in the publication and circulation of newspapers in the city of Daytona Beach. At the time the remaining shares, four hundred in number, were owned by T. E. Fitzgerald. About three years later the appellee, R. H. Gore, himself a newspaper man of wide experience, was importuned by a group of citizens to establish a newspaper, rival to the one then published by the appellant corporation, and as a consequence appellee became a competitor of the appellant.

This competition between the two papers was lively from its inception and as time progressed it grew into bitterness. We offer no comment on the practices of the competitors for fear that it would obscure the real issues involved in this litigation, and to the end that the controversy may not thus become beclouded will confine our observations as nearly as possible to the relative rights of the litigants in their eventual position as stockholders in a common corporation namely, the appellant.

In May, 1936, the stockholder Fitzgerald resigned his directorship, a position held by him theretofore continuously from the time the Davidsons became interested in the enterprise and in July of the following year he sold all of his stock to the competitor, R. H. Gore.

Three years passed when the plaintiff, appellee here, filed his bill of complaint against the defendants seeking relief from alleged mismanagement on the part of the Davidsons. The pleadings are quite extensive and it does not appear necessary to prolong this opinion by giving the substance of them in order to dispose of the questions which have been presented to the court for solution as they will develop from the discussion of the attacks on the chancellor's findings of fact and conclusions of law.

Generally, we will deal with the conduct of the affairs of the corporation by the Davidsons, the propriety of the purchase by one of them of certain property used by the corporation and the correctness of the chancellor's ruling on the principal issues as well as the assessment of certain costs incurred in producing the testimony of a certified public accountant.

The final decree was very far reaching in its effect, and it is criticized by the defendant who insists that the relief afforded was entirely too harsh under the circumstances unfolded by the witnesses and the documentary evidence, while plaintiff contends that it fell short of granting the full relief justified.

Having found that the equities were with the plaintiff, and that the assets of the defendant 'should be liquidated and distributed over some reasonable length of time', the chancellor ordered that these assets be sold on or before June 1, 1941, at private sale on a basis that would afford an equal opportunity to the litigants as well as any other person to purchase them, and that upon failure to accomplish liquidation in this manner the court would entertain an application for enforcement of the final decree to effect a sale upon just and equitable terms and conditions. We will refer hereafter more in detail to the various findings in the decree forming the foundation for this vital provision with reference to liquidation and attempt to group them as we dispose of the questions in the order given at the outset.

The chancellor held the conviction that the Davidsons had enriched themselves at the corporation's expense by drawing salaries for their labors which they did not properly earn and which were especially out of proportion to the services rendered when considered in connection with the income from the corporation. This finding of the chancellor that they received excessive compensation was, in view of all the circumstances reflected by the record, eminently correct. He concluded, however, that because their remuneration had been approved by all of the stockholders 'at least until July, 1937' (the time when plaintiff secured Fitzgerald's interest) it would not be just to award a money decree in favor of the corporation and against the Davidsons for the difference between amounts actually earned and those paid.

It is the general rule 'that stockholders have no standing to attack mismanagement of the corporation prior to the acquisition of their stock.' 6 Thompson on Corporations, 3rd Ed., Sec. 4509. Fitzgerald as a director approved the salaries established and therefore his successor in ownership could not complain about amounts paid therefor prior to the transfer, but the purchaser had the right to contest salaries fixed and paid after he became a stockholder. 13 Am.Jur., Corporations, Sec. 456 et seq.

The Chancellor decided that inasmuch as no protest had been made by the plaintiff against salaries paid to the Davidsons after he bought his stock there should be no money decree entered for the return of the unearned portions paid since that time.

We believe that in the circumstances it would have been just for the court to enter a decree requiring the Davidsons to place into the treasury of the corporation the parts of their salaries that were excessive paid them after July, 1937, even though the plaintiff may not have protested until the filing of the suit. There were but three stockholders and strong animosity existed between the Davidsons who were in control and the third stockholder Gore and this feeling had become so strong that unquestionably any voice expressed by the latter would have fallen on deaf ears. There was no such conduct on the part of the minority stockholder as could be construed as acquiescence on his part, and as would have precluded him from successful complaint under the rule announced in Redstone v. Redstone Lumber & Supply Co. et al., 101 Fla. 226, 133 So. 882. Under the facts we think that the court may well have interfered with the salaries being paid (Neff v. Twentieth Century Silk Corporation et al., 312 Pa. 386, 167 A. 578) and that it would have been proper for the decree to require a return of the excess compensation subsequent to July, 1937. Hall v. Woods, 325 Ill. 114, 156 N.E. 258; Calkins v. Wire Hardware Co., 267 Mass. 52, 165 N.E. 889. Patently, if there is a restoration of that part of the amounts received by the Davidsons found to have been unearned and present compensation is restricted to the figure given in the decree the effect on the value of the interest of the plaintiff who owns forty per cent of the stock will be substantial.

We consider next the demeanor of one of the majority stockholders in the purchase of certain properties occupied or used by the corporation in its business. There were two parcels. Both were bought by Davidson, the elder, joined by his wife. The first tract was a vacant lot adjoining in the rear the one on which was situated the building occupied by the corporation, and it was used without permission of the owner for the purpose of ingress and egress to the back entrance. The amount paid was $1,800 and doubtless this could have been procured without difficulty even though the corporation may not...