Pitts v. Halifax Country Club, Inc.

• Decision Date: 02 May 1985
• Citation: 476 N.E.2d 222,19 Mass.App.Ct. 525
• Parties: Fordie H. PITTS, Jr. v. HALIFAX COUNTRY CLUB, INC. et al. 1
• Court: Appeals Court of Massachusetts

Page 222

476 N.E.2d 222

19 Mass.App.Ct. 525

Fordie H. PITTS, Jr. v. HALIFAX COUNTRY CLUB, INC. et al. ¹

Appeals Court of Massachusetts Suffolk.

Argued March 22, 1983.

Reargued August 31, 1984.

Decided March 26, 1985.

Further Appellate Review Denied May 2, 1985.

Richard J. Innis, Boston, for plaintiff.

Alton F. Lyon, Rockland, for Halifax Country Club, Inc.

Before ARMSTRONG, ROSE and DREBEN, JJ.

ARMSTRONG, Justice.

This action was commenced in 1971 by a shareholder of the defendant corporation (Halifax) for the purpose of unraveling a 1969 merger of Halifax and two other corporations or to exercise appraisal rights for the plaintiff's shares of stock in Halifax. The case followed a laborious and procedurally anomalous course in the Superior Court. It comes before us on a master's report, a report of evidence, and independent findings made by a judge from the reported evidence. ² Although the master's report was never in so many words adopted by the judge, he did expressly (and properly) overrule the objections to the subsidiary findings (subject to a single modification not now material). Those findings were amply supported by the evidence. The judge disagreed with the master's "general findings", which were four in number. Three were in essence rulings of law based on the facts found. One was an inference of fact drawn from the subsidiary findings. Under the circumstances we treat the judge's action in overruling the plaintiff's objections to the subsidiary findings as an allowance of Halifax's motion to adopt the master's report with the general findings excised. Compare Snyder v. Sperry & Hutchinson Co., 368 MASS. 433, 435 N. 1, 333 n.e.2D 421 (1975). On the view we take of the case, the master's subsidiary findings, with inferences properly drawn therefrom, furnish an adequate basis for the entry of judgment. ³ Contrast Lattuca v. Cusolito, 343 Mass. 747, 752-753, 180 N.E.2d 658 (1962); Glynn v. Gloucester, 9 Mass.App. 454, 457-459, 401 N.E.2d 886 (1980). Viewing the case as one coming before us on an adopted master's report, presenting the question what judgment should be entered on the stated findings, we stand in the same position as the judge below and thus accord no particular deference to the judge's independent findings and rulings. ⁴ Compare Peters v. Wallach, 366 Mass. 622, 626, 321 N.E.2d 806 (1975); Bills v. Nunno, 4 Mass.App. 279, 283-284, 346 N.E.2d 718 (1976); Vincent v. Torrey, 11 Mass.App. 463, 466, 417 N.E.2d 41 (1981); Hardiman v. Hardiman, 11 Mass.App. 626, 628, 418 N.E.2d 347 (1981).

In 1965 one Henrich undertook with a colleague, Wyman, to form a golf club in the town of Halifax; they formed the defendant corporation (Halifax) and they each contributed land (and, in Henrich's case, a house) to be used for the course and clubhouse. Their contributions were worth in the vicinity of $50,000 each. Halifax had an authorized stock issue of 300 shares. Henrich and Wyman were each issued forty-nine. One Sullivan, who may have furnished legal services to Halifax and who was named clerk, was issued two. After some development of the property, Halifax opened as a nine-hole course in 1967. In October of that year the authorized capital stock was increased to 5,300 shares. In December Halifax bought back Wyman's shares for $60,000. At some time Sullivan transferred one of his shares to Halifax and one to Henrich.

From the outset Henrich was the moving force behind Halifax and ran it as his own company. He wished to enlarge the course to eighteen holes. He advertised for investors and, between January and September, 1968, he attempted to raise money for Halifax by issuing and selling shares at $100 per share. Each investor was promised by Henrich that he could return his shares at any time and would receive back his $100 plus six percent interest.

In March, 1968, the plaintiff, Pitts, who apparently had extensive experience both in playing golf as a professional and in operating golf courses, responded to an advertisement and indicated to Henrich that he wished to acquire a position in Halifax but primarily for services rather than cash. On March 30 of that year Henrich (as president of Halifax) and Pitts executed a written agreement by which Pitts was engaged to serve as director of operations of the golf club and course and consultant to the management for a period of one year, on a part-time basis (twenty hours per week, at times of his own choosing), for which he was to receive 100 shares of Halifax stock. He was also given a three-year option (beginning October 1, 1968) to purchase up to 750 shares at a price of $100 per share, and Henrich (for Halifax) promised that Halifax would hold enough shares unissued until the end of the option period to be able to make good on the option. ⁵ In May, 1968, Pitts purchased twenty shares for $2,000, whether against the option or independently does not appear. In November the same year, he was issued the promised 100 shares for his services in the golfing season. Pitts thus held 120 shares. Henrich continued to run Halifax as if he were the dominant stockholder, although, having done nothing to adjust his own shareholding, at the time he effected the tenfold (plus) increase in the authorized capital stock and started to sell off shares at $100 apiece, he (Henrich) held only fifty shares.

The corporate records, including the stock register, were kept with some informality and it is difficult to reconstruct accurately exactly how many shares may have been outstanding in 1968. At the time Pitts and Henrich entered into their agreement, it was represented (in the agreement) that, of the authorized shares (stated inaccurately to be 5,000), 185 shares were issued and outstanding and 50 additional shares were held in Halifax's treasury. Halifax had been losing money in its first two years of operation. By the winter of 1969, Henrich apparently decided that a preferable way to raise capital for the Halifax operation was by merger with two other corporations he owned (apparently as sole shareholder), which had financial assets and cash flow that Halifax lacked and could themselves derive some benefit in their tax obligations from Halifax's losses. Henrich thus determined to buy back the outstanding Halifax stock (except his own) and to effect the merger. All of the shareholders agreed, selling back their shares to Halifax for $100 apiece plus six percent interest, except for Pitts and one other shareholder, who held but a single share and is not involved in this litigation. ⁶

In February, 1969, Henrich negotiated for the return of Pitts's shares, explaining the merger plans to Pitts. Pitts declined an offer of $100 per share with six percent interest, but the parties eventually agreed on terms whereby Pitts would sell his shares back to the corporation, receive $18,000 in cash, enter into a noncompetition agreement and a long-term membership and consulting arrangement, retain a right of first refusal should an offer be made for the club and grounds, and surrender his option to purchase an additional 750 (perhaps now 730) shares as spelled out in the March, 1968, agreement. One point remained to be settled: the form in which Pitts would receive the $18,000: whether the entire sum would be attributed to his 120 shares (i.e., at $150 per share) or a part, probably $6,000, attributed to the noncompetition agreement. Pitts was to decide, and the attorneys for Pitts and Halifax were to work out the text of the agreement.

Armed with the oral understanding and relying on the assumption that it would achieve fruition, Henrich called a stockholders' meeting for February 28, 1969, which approved the merger with his other two corporations. The meeting was attended by Henrich and one Lajoie, then clerk of Halifax. Pitts was given no notice of the meeting and, of course, did not attend. Halifax was the surviving corporation, into which the others were merged. The merger agreement provided for an authorized stock of 8,000 shares. The nonsurviving corporations brought assets into Halifax valued in the aggregate at $534,500, and Henrich, as the sole shareholder of each, was issued 5,345 additional shares of Halifax. The articles of merger were duly filed with the Secretary of the Commonwealth.

On March 11, 1969, the attorney for Halifax sent to Pitts's attorney a draft incorporating Henrich's version of the terms of the agreement. Pitts did not execute the drafts; instead, his attorney forwarded two agreements to Halifax, one incorporating the terms of the sale and the other varying the terms of the noncompetition agreement. Henrich talked to Pitts by telephone, agreed to the sale agreement and returned the noncompetition agreement to Pitts with a proposed compromise and a suggestion for a new provision limiting Pitts's eligibility for the annual club championship tournament to years in which Pitts maintained a certain level of activity in the club. By 1970 the letters had ceased to be congenial, and it was apparent that the oral agreement had collapsed. Pitts commenced his action in May, 1971.

Pitts's position is essentially as follows. Halifax's failure to give Pitts notice of the shareholders' meeting at which the merger was approved was a violation of G.L. c. 156B, § 78(c ), as amended by St.1965, c 685, § 32 (see now § 78[c ][ii] ). For that reason, as well as for the reason that the merger failed to secure the approval of two-thirds of the Halifax shares then outstanding (id., see now § 78[c ][iii] ), the merger was void. Pitts is therefore entitled to have the assets of the three merged corporations segregated and to receive for his stock a sum representing a percentage of Halifax's golf course and club assets equal to the percentage of Halifax stock he owned going into the merger. Specifically, he contends that Halifax's net worth today, segregated out from the other two corporations, is $1,013,754.28; and that he is entitled to 70.18 percent ...