Piedmont Pub. Co. v. Rogers

• Decision Date: 19 June 1961
• Court: California Court of Appeals Court of Appeals
• Parties: PIEDMONT PUBLISHING COMPANY, Plaintiff and Respondent, v. Mary Pickford ROGERS and Charles Buddy Rogers, Defendants and Appellants. Mary Pickford ROGERS and Charles Buddy Rogers, Cross-Complainants and Appellants, v. PIEDMONT PUBLISHING COMPANY, a North Carolina corporation; Gordon Gray; William K. Hoyt; Harold Essex; Triangle Broadcasting Corporation, a North Carolina corporation; R. M. Hanes; Charles H. Babcock; Carlysle A. Bethel; Ernst & Ernst, a co-partnership; John Doe I through John Doe XX, dba Ernst & Ernst, a co-partnership; H. J. Rover; Harold Borthwick; Doe I Corporation et al., Cross-Defendants and Respondents. Civ. 24268.

Page 133

14 Cal.Rptr. 133

193 Cal.App.2d 171

PIEDMONT PUBLISHING COMPANY, Plaintiff and Respondent, v. Mary Pickford ROGERS and Charles Buddy Rogers, Defendants and Appellants.

Mary Pickford ROGERS and Charles Buddy Rogers, Cross-Complainants and Appellants, v. PIEDMONT PUBLISHING COMPANY, a North Carolina corporation; Gordon Gray; William K. Hoyt; Harold Essex; Triangle Broadcasting Corporation, a North Carolina corporation; R. M. Hanes; Charles H. Babcock; Carlysle A. Bethel; Ernst & Ernst, a co-partnership; John Doe I through John Doe XX, dba Ernst & Ernst, a co-partnership; H. J. Rover; Harold Borthwick; Doe I Corporation et al., Cross-Defendants and Respondents.

Civ. 24268.

District Court of Appeal, Second District, Division 1, California.

June 19, 1961.

Rehearing Denied July 17, 1961.

Hearing Denied Aug. 16, 1961.

Harned Pettus Hoose, Beverly Hills, Wayne I. McClaskey, Los Angeles, Maurice L. Muehle, Beverly Hills, for appellants.

Womble, Carlyle, Sandridge & Rice, W. P. Sandridge, Winston-Salem, N. C., and Gibson, Dunn & Crutcher, Sherman Welpton, Jr., and F. Lee Coulter, Jr., Los Angeles, for respondents Piedmont Publishing Company, William K. Hoyt, Harold Essex and W. L. Maynard.

O'Melveny & Myers, Philip F. Westbrook, Jr., William W. Vaughn, Los Angeles, for respondents Ernst & Ernst and Harry Borthwick.

DRAPEAU, Justice pro tem.

Piedmont Publishing Company, a North Carolina corporation, and Mary Pickford Rogers, star of silent pictures, were rival applicants for a license by the Federal Communications Commission for a television station in Winston-Salem, North Carolina.

Piedmont owned and published two newspapers in Winston-Salem, and also owned and operated a radio broadcasting station there.

Piedmont and Miss Pickford decided to pool their interests and organize a new corporation in North Carolina to apply for the license. They knew that only one license would be granted, and that a contest for it might take so long that a television station already licensed in Winston-Salem might capture the television audience. Then, whichever one, Piedmont or Miss Pickford, was awarded the license would have but a pyrrhic victory.

So they organized a corporation under the laws of North Carolina--Triangle Broadcasting Corporation--to make the application.

Then Piedmont and Miss Pickford withdrew their applications.

But they didn't have the coveted license in their possession yet. A dark cloud appeared on the horizon. The owner of another radio station in Winston-Salem applied for a telecasting license, and they faced another long delay unless they could do something about it.

This obstacle was overcome by having Triangle agree to pay the new applicant $20,000 over a 12-month period, for advertising Triangle's television station by his radio station. For this he withdrew his application.

Then Triangle was awarded the license--station WSJS-TV.

Then Triangle was awarded an exclusive local Contract with National Broadcasting Company.

Piedmont and Miss Pickford had been negotiating for some time before they came to an agreement. Miss Pickford was represented by a business adviser and a lawyer. These men did the actual, face-to-face negotiating.

Before the agreement was put into writing, incorporation of Triangle was commenced, as speed in getting the application before the Federal Communications Commission was essential.

Piedmont and Miss Pickford signed the agreement in New York May 25, 1953.

Piedmont subscribed for 1,000 shares of Triangle's stock, for which it later paid $100,000.

Miss Pickford subscribed for 500 shares, for which she later paid $50,000.

Expressed in fractions, Piedmont subscribed and paid for two-thirds, and Miss Pickford one-third of Triangle's stock. And that is all the stock ever issued by Triangle.

The agreement gave Piedmont an option to purchase Miss Pickford's stock at the end of any one of Triangle's fiscal years 1956, 1957, 1958, and 1959. The price Piedmont was to pay for the stock was to be determined by a formula to be used by Triangle's 'regularly employed independent certified public accountants.'

The agreement also provided that if Piedmont did not exercise its option within the fiscal years stated, Miss Pickford was to have an option to purchase one-half of Piedmont's stock in Triangle.

Controversy over the enforcement of Piedmont's option is the basis of this lawsuit.

The formula to determine the purchase price to be paid by Piedmont for the Pickford stock was as follows:

An amount per share of stock equal to the sum of the two following items, divided by the number of outstanding shares of the corporation:

1. An amount equal to the total book value at the beginning of any such period of Triangle's common stock (total amount of issued and outstanding common stock at par plus the amount of earned and other surplus or less the amount of deficit, if any) adjusted to reflect an annual depreciation and obsolescence charge of not over 10% against such tangible assets as have been depreciated on the books of Triangle at a higher rate; and

2. An amount determined by multiplying the average net annual profits of Triangle by five.

Five was the multiplier agreed upon for 1956, the year in which Piedmont exercised its option. If the option had been exercised in 1957 it would have been four; in 1958 three; and in 1959 two.

'Average annual net profits' was defined as follows:

'Average annual net profits shall be determined by dividing the number of fiscal years for the period involved, as described in column (2) above, into the sum of the annual net profits during such fiscal years less the sum of the annual net losses, if any, during such fiscal years, as shown by the annual financial reports of Triangle as prepared by Triangle's regularly employed independent certified public accountants, and after provision for all taxes, including federal and state income and excess profits taxes.'

In 1954 Miss Pickford transferred to her husband, Charles Buddy Rogers, 225 of her 500 shares of Triangle stock. Piedmont approved of the transfer, as required by the agreement.

July 20, 1956, Piedmont exercised its option, and made a tender to the Pickfords of the purchase price, as computed by the accountants.

Thereafter Piedmont made many unsuccessful attempts to induce the Pickfords to comply with the option--by correspondence, telephone calls, and telegrams, and finally by a trip by its officers to California to see them personally.

April 16, 1958, Piedmont brought this action for specific performance and for declaratory relief, naming as defendants Mary Pickford and her husband, Charles Buddy Rogers.

The case was tried on plaintiff's first amended complaint.

The amended complaint alleged that Triangle's 'regularly employed independent certified public accountants' applied the formula in the option, and determined that the purchase price of the Pickford-Rogers stock was $85,461.00; also that because of unusual expenditures caused by relocating Triangle's transmitting station, plaintiff had concluded that the Pickfords were entitled to an additional sum of $41,351.36, which they had 'voluntarily and gratuitously' tendered to them.

This additional tender was made for the following reasons:

After the station commenced telecasting, it became apparent that a change of location of its transmitter to higher ground was desirable.

The station would then be able to transmit better signals for greater distances. More listeners would be brought within its range. And the station would become a better medium for its advertisers.

So they moved the transmitter to the top of a mountain, from where it had been located at a place called Kernersville.

The cost of moving the transmitter caused losses to be shown on Triangle's books that materially cut down the option price, as computed under the formula.

The sum of the two offers is $126,812.36.

Defendants alleged in their answer that the purchase price computed by Triangle's accountants was grossly inadequate and unfair; that the formula was not properly applied; that the court was without jurisdiction in that Triangle, an indispensable party, and Gordon Gray, principal stockholder of Piedmont, were not before the court; and, furthermore, that plaintiff did not appear in a court of equity with clean hands.

Defendants also cross complained, naming as cross defendants: Piedmont, Gordon Gray, William K. Hoyt, Harold Essex, Triangle, Ernst & Ernst, Harry Borthwick, and others.

Trangle and Mr. Gordon Gray were not served with summons, and did not appear in the action. Mr. William L. Maynard was served in place of a fictitious defendant.

Mr. Gordon Gray is principal stockholder of Piedmont. Mr. Hoyt is president and director of Piedmont and Triangle. Mr. Essex is executive vice president of Triangle, and director of Piedmont and Triangle. Mr. Maynard is supervising controller of Piedmont and Triangle; but Piedmont pays his salary.

Ernst & Ernst is a partnership of certified public accountants, with offices in a number of cities in the United States. It has, however, been a long time since any one by the name of Ernst has been a member of the partnership.

Mr. Harry Borthwick is resident partner of Ernst & Ernst in Winston-Salem. He computed the option price, after consulting with an associate in New York.

Defendants again alleged in their cross complaint that the Superior Court of the State of California was without jurisdiction, in that Triangle was an indispensable party to the action and was not before the court as a party plaintiff or defendant.

This contention has been urged all through this case, and is a principal ground of appeal.

Demurrer on the ground that Triangle was an indispensable party was interposed to the first amended complaint, and overruled; formal motion for an order joining Triangle as an indispensable party, together with Gordon Gray, was made, and denied; petitions for a writ of prohibition were...