Press v. C.W. Potter, Inc.

• Decision Date: 07 July 1939
• Citation: 22 N.E.2d 68,303 Mass. 485
• Parties: POTTER PRESS v. C. W. POTTER, Inc., et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

303 Mass. 485

22 N.E.2d 68

POTTER PRESS

v.C. W. POTTER, Inc., et al.

Supreme Judicial Court of Massachusetts, Middlesex.

July 7, 1939.

Suit in equity by the Potter Press against C. W. Potter, Incorporated, the Waltham Salesbook Company, Incorporated, Charles W. Potter, and others, to enjoin and recover damages for unfair or illegal competition. From an interlocutory decree, overruling named defendants' exceptions to and confirming a master' report, and a final decree, granting a permanent injunction and awarding damages against such defendants and dismissing the bill as against other defendants, named defendants appeal.

Interlocutory decree affirmed, and final decree modified and affirmed as modified.Appeal from Superior Court, Middlesex County; Beaudreau, Judge.

E. F. McClennen and E. Williamson, both of Boston, for appellants Waltham Salesbook Co., Inc., and another.

G. A. McLaughlin and Charles S. McLaughlin, both of Boston, for appellant Charles W. Potter.

R. T. Bushnell, A. C. Burnham, and J. Lewiton, all of Boston, for appellees.

LUMMUS, Justice.

The facts appear in the report of a master. Charles W. Potter incorporated his printing business as the plaintiff corporation in 1912, and it maintained a precarious existence until 1919, when he opened negotiations with Lorenz F. Muther. The latter induced his father to buy the assets and good will of another printing company and to convey them to the plaintiff. The stock of the plaintiff was redistributed. Muther's father received preferred stock which had no voting power, for his outlay, more than $180,000. Fifty-one per cent of the common stock, or five hundred and ten shares, went to Lorenz F. Muther, and all but five shares passed from him to his wife, Josephine A. Muther. Four hundred and ninety shares were divided equally between Potter and his associate Dakin. Potter was president, director and general manager. Muther was treasurer and director. Dakin was clerk and the third director. The plaintiff specialized in the production of salesbooks.

From 1919 until February, 1933, though Muther was an experienced business man interested in a number of enterprises, and kept in touch with the affairs of the plaintiff, the management of the plaintiff was in the hands of Potter. In his hands the plaintiff was extremely successful. The seven per cent dividend on the preferred stock was paid continuously, and in addition large dividends were paid on the common stock. Potter was justly proud of his ability and record, and somewhat impatient of any superior authority. By 1932, he had come to regard the business as his own and to resent the necessity of consulting Muther.

Muther, on the other hand, was piqued at not being consulted more freely, and, made apprehensive by the failure of other investments, began early in 1932 with the aid of Edith F. Cornell an investigation of the affairs of the plaintiff. Nothing wrong was discovered, but discord arose between Muther and Potter.

Potter had become interested in sales registers, which he thought might displace salesbooks, for the same store does not use both. On August 26, 1932, he incorporated the Atlantic Register Company for the purpose of going into the register business. As early as September, 1932, he had committed himself to building up its business with the aid of money obtained from a paper mill. That company did not come to the attention of Muther until February 28, 1933.

At the annual meeting of the plaintiff on January 16, 1933, the old officers were reelected. At the directors' meeting later on the same day, Muther made proposals which were not acceptable to Potter. Muther proposed payment to himself for $2,000 and to Miss Cornell of $1,000 for services in the investigation, in addition to his salary as treasurer of $8,500. He proposed a reduction in Potter's salary to $15,000, thus cutting off a recent advance of $3,000. He proposed that Dakin, who had a salary of $3,500 as attorney, be employed thereafter by the case. After the meeting, Muther asked Potter for a list of persons who had received Christmas presents from the plaintiff, and Potter refused to give it. Potter said that it was obvious that he and Muther could not work together, and that one must buy out the other. Later, Muther came to the conclusion that his majority interests required that he control a majority of the directors. At a special meeting of the stockholders on February 20, 1933, the Muthers by voting their five hundred and ten shares amended the by-laws by increasing the number of directors from three to six, and elected three more directors friendly to Muther.

Muther did not wish to get rid of Potter as president and general manager, but Potter insisted upon resigning, and Dakin resigned with him. The chief employees felt loyalty to Potter, and feared that the plaintiff could not succeed without him. Following the stockholders meeting on February 20, 1933, they met, and Potter addressed them. He told them that he could take care of himself, and that they should not leave. But they continued to meet in the absence of Potter, and decided to form a new company, though they had little capital and no very definite plans, for they felt that Potter would help them.

These chief cmployees about February 22, 1933, formed a corporation called the Waltham Salesbook Company, Inc., for the purpose of selling salesbooks. They told Muther on February 23, 1933, that they would leave the employ of the plaintiff about March 1, 1933, unless Potter should be reinstated. They did leave, and began an active sales campaign, covering the routes that they had covered for the plaintiff. They made an arrangement with the McCasky Company to furnish them with a product to sell. Learning that Potter had plans for manufacturing salesbooks, they did not venture into that field.

On March 27, 1933, Potter completed the incorporation and organization of C. W. Potter, Inc. He obtained capital from paper mills in exchange for preferred stock of that corporation and Atlantic Register Company. In April C. W. Potter, Inc., started to manufacture salesbooks. After some negotiations, Potter acquired substantially all the stock of Waltham Salesbook Company, Inc., for cash, and on September 18, 1933, all its assets were conveyed to C. W. Potter, Inc., in consideration of the assumption of its liabilities. It continued to exist only as a ‘corporate shell as a department of C. W. Potter, Inc.’ The offices of C. W. Potter, Inc., Waltham Salesbook Company, Inc., and Atlantic Register Company are occupied in common, and the three corporations are all ‘under the common management and control of Potter.’ The master does not find that any of these companies in their formation and entrance into business were part of any unlawful conspiracy to injure the plaintiff. But he has found that some of the competitive acts of the two companies first named have wronged the plaintiff.

The master finds that beginning in 1933 a persistent attempt was made, by misrepresentations as to the financial standing of the plaintiff and otherwise, to induce its salesmen to leave it and work for the Waltham Salesbook Company, Inc., in some cases in violation of contracts with the plaintiff. The master finds, also, that salesmen employed by the Waltham Salesbook Company, Inc., have represented to former customers of the plaintiff (a) that the plaintiff was out of business, (b) that the plaintiff was irresponsible and about to fail, or (c) that the two concerns were identical, and have obtained orders through such misrepresentations. He finds, also, that mail orders addressed to the plaintiff were delivered by mistake to C. W. Potter, Inc., which knowingly caused them to be filled by Waltham Salesbook Company, Inc., without notification to the plaintiff or the customers of the facts.

The master finds that one Wheeler, a former employee of the plaintiff who went over to Waltham Salesbook Company, Inc., upon its organization, brought an action for expenses against the plaintiff which he knew was groundless. He finds that Waltham Salesbook Company, Inc., in 1934 brought a bill in equity against the plaintiff alleging misrepresentations to customers injurious to Waltham Salesbook Company, Inc., and other unfair practices. After considerable preparation for defence on the part of the plaintiff, counsel for Waltham Salesbook Company, Inc., admitted that the case would never be brought to trial. It is still pending. The master finds that it was prosecuted in a manner calculated to annoy the plaintiff and cause it expense. As to a petition for mandamus against the plaintiff by a minority stockholder named Gooding, he finds that Gooding was a friend to Potter, that Gooding employed the young lawyer who was attorney for Waltham Salesbook Company, Inc., with whom he had never before done business, and that after certain information was furnished by the plaintiff the petition was dismissed. As to a bill in equity by Gooding against the plaintiff, alleging mismanagement, brought by the same counsel, the master finds that the allegations of the bill were extravagant, in places were couched in derogatory language, and to a great extent were unsupported by the facts. The young lawyer for Gooding gave a copy of the bill to a reporter for publication, having reason to believe that publication would injure the plaintiff. He knew that he could not expect the appointment of a receiver on the allegations of the bill, although the bill prayed for such an appointment. The master finds ‘that the bill was not brought in good faith for the best interests of all the stockholders, but was brought to damage* * * [the plaintiff] and to benefit Charles W. Potter, C. W. Potter, Inc. and Waltham Salesbook Company [Inc.],’ and that Gooding's ‘actions were committed as part of the in pursuance of the conspiracy to injury The Potter Press.’ Potter was instrumental in the bringing of the suit for the purpose found to exist. A...