Raines v. Toney
| Decision Date | 05 May 1958 |
| Docket Number | No. 5-1335,5-1335 |
| Citation | 313 S.W.2d 802,228 Ark. 1170 |
| Parties | Sam P. RAINES et al., Appellants, v. Mary R. TONEY et al., Appellees. |
| Court | Arkansas Supreme Court |
McMillen, Teague & Coates, Robert S. Lindsey and Edward L. Wright, Little Rock, for appellants.
Gannaway & Gannaway, Wood & Smith and Patten & Brown, Little Rock, for appellees.
This appeal involves a derivative action brought by certain shareholders of E. E. Raines Company seeking to recover damages for injuries sustained by the corporation against Appellants Sam P. Raines, James M. Coates, Sr., James M. Coates, Jr., and Gordon Y. Price; Commercial Union Assurance Co., Ltd., Commercial Union Fire Insurance Company of New York, The Palatine Insurance Co., Ltd. and Union Assurance Society, Ltd., herein referred to as Commercial Union Group; and Great American Insurance Company, Great American Indemnity Company and Rochester American Insurance Company, herein referred to as Great American Group.
E. E. Raines Company was incorporated under the laws of the State of Arkansas as a general insurance agency on November 7, 1931, under the name of Coates & Raines, Inc., with its principal place of business at 410 Spring Street, Little Rock, Arkansas. Its official name was changed to E. E. Raines Company on January 5, 1944; and it was dissolved on February 7, 1956, after the present suit had been instituted.
Appellant Sam P. Raines was at all times since 1950 a member of the Board of Directors and at all times since 1944 a Vice-President of E. E. Raines Company. E. E. Raines, deceased, was at all times prior to his death on July 30, 1952, President and a Director of E. E. Raines Company. Sam P. Raines assumed full direction and control of the corporate affairs following the illness of E. E. Raines in January of 1952, and held office until the dissolution of the corporation on February 7, 1956.
Prior to October 1, 1952, Coates & Coates was a partnership composed of Appellants, James M. Coates, Sr., Gordon Y. Price and James M. Coates, Jr., and was engaged in the general insurance agency business. James M. Coates, Sr., the senior partner in Coates & Coates, was for many years prior to 1936 an employee of E. E. Raines Company.
Coates & Raines, a partnership, was organized on or about October 1, 1952, and is engaged in the general insurance agency business. It is composed of Appellants, James M. Coates, Sr., Sam P. Raines, Gordon Y. Price and James M. Coates, Jr. It took over the representation of the Commercial Union Group and the Great American Group on October 1, 1952.
Prior to October 1, 1952, E. E. Raines Company was one of the most successful fire and casualty general insurance agencies in Arkansas and had represented for many years the Commercial Union Group and the Great American Group. The following schedule reflects the volume of business done by E. E. Raines Company for the five years prior to 1952 from all representations and from the Great American Group and the Commercial Union Group:
Year Gross Premiums Gross Premiums Gross Premiums Total Premiums
from All from Great from from Great
Representation American Commercial American and
Representation Group Commercial
Representation
------- ---------------- ---------------- ---------------- ----------------
1951 $1,477,825.65 $416,395.19 $205,516.91 $621,912.10
1950 1,491,888.59 413,959.47 221,253.57 635,212.99
1949 1,609,705.47 449,004.34 241,420.87 690,425.21
1948 1,658,891.65 426,699.78 256,554.82 683,254.60
1947 1,718,026.61 455,178.50 261,120.62 716,299.12
----------------
Total $3,347,104.02
E. E. Raines Company maintained 'agency plants' in various cities throughout Arkansas as its outlet for the sale of fire and casualty insurance. Out of the gross premiums collected from the sale of such insurance it retained 10% thereof as its profit and compensation. From 1947 through 1951, its five year average annual gross premiums from the Commercial Union Group and the Great American Group were $669,420.80 of which E. E. Raines Company retained an average of $66,942.08 as its profit and compensation.
At the beginning of 1952, there were 500 shares of stock of E. E. Raines Company outstanding, and it was owned as follows:
1. E. E. Raines 225 shares
2. Alice M. Coates 175 shares
3. Sam P. Raines 37 shares
4. Edna J. Williams 12 shares
5. Mary R. Toney, Trustee 50 shares
6. Others 1 share
----------
Total 500 shares
Mrs. Alice M. Coates is the Mother of Appellant, James M. Coates, Sr., and her shares in E. E. Raines Company passed to her at the death of her husband many years ago. She had not at any time participated in the management of E. E. Raines Company. During the period in question the Board of Directors of E. E. Raines Company consisted of E. E. Raines, Sam P. Raines, John E. Coates, Jr., W. R. Perry and J. D. Toney.
It appears that in January of 1952, E. E. Raines, President of E. E. Raines Company, became disabled, and on January 23, 1952, Sam P. Raines was granted authority to write checks, a power and duty that he apparently had not held before. It further appears that on June 4, 1952, at an informal and unofficial meeting of the shareholders of E. E. Raines Company held in an attorney's office, Sam P. Raines proposed that he be retained as general manager of the corporation at an annual compensation of $25,000 and demanded an immediate acceptance thereof. However by mutual agreement, action on the proposal was deferred until June 23, 1952. It also appears that prior to the June 4th meeting and prior to June 23, 1952, Sam P. Raines, while acting as Vice-President, General Manager and as a member of the Board of Directors of E. E. Raines Company, solicited in his own behalf and on behalf of Coates & Raines, a new partnership to be formed by Sam P. Raines and James M. Coates, Sr., the representation of the Commercial Union Group and the Great American Group.
In this respect, the evidence reflects that as early as March or April of 1952, Sam P. Raines had made trips to the headquarters of the Great American Group and Commercial Union Group in New York, and had negotiated for the representation of these two groups. Following the month of May, 1952, considerable correspondence marked 'Personal and Confidential' took place between Sam P. Raines and Mr. Florence, a Vice-President of the Commercial Union Group. The essence of this correspondence was that when Sam P. Raines resigned and left the employment of E. E. Raines Company, the Commercial Union Group would cancel the general agency agreement with E. E. Raines Company and give it to Coates & Raines, a partnership to be formed by Sam P. Raines and James M. Coates, Sr. On June 24, 1952, Sam P. Raines notified Mr. Florence that he had made his 'final move' and that the way is 'clear for you to send' out your letters. The general agency contracts between E. E. Raines Company and the Commercial Union Group provided for a 90 day notice of intentions to cancel, and, accordingly, Mr. Florence caused such notices to be given E. E. Raines Company terminating the general agency contracts effective October 1, 1952. On June 23, 1952, Sam P. Raines sent out a notice to shareholders of E. E. Raines Company stating that, The record fails to reflect that Sam P. Raines ever resigned. It does disclose that he remained the Vice-President and a director until the corporation was dissolved on February 7, 1956.
The evidence further reflects that on June 10, 1952, Mr. James M. Coates, Sr., visited Mr. Florence in New York pertaining to the representation of the Commercial Union Group, and Mr. Florence made the following memorandum of the interview:
'Mr. James Coates visited my office on Tuesday, June 10th and explained the situation as it exists in view of Mr. E. E. Raines' condition.
'The stock of this corporation is owned as follows
Mr. E. E. Raines 45%
Mrs. Coates 35%
Mrs. Toney 10%
Mr. Sam Raines 7%
Probably E. E. Raines' other daughter 3%
'Mr. Sam Raines met with the stockholders but no arrangement could be worked out to his satisfaction. He is resigning as of September 30, 1952.
'Mr. Sam Raines and Mr. James Coates intend to open a new general agency under the name of Coates & Raines.
'They expect to dissolve the E. E. Raines Corporation and dispose of its physical assets. They expect to accomplish this by voting 52% of the stock, (Mrs. Coates 35%, Mr. Sam Raines 7% and Mrs. Toney's 10%). In the event that Mrs. Toney does not vote with them for the dissolution they expect the corporation to be dissolved automatically for lack of companies.
'The stock of the corporation of Coates & Raines will be owned as follows:
James Coates 35%
Sam Raines 35%
James Coates, Jr. 15%
Gordon Price 15%
Mr. Coons and I explained to Mr. Coates that we were not interested in the dissolution of E. E. Raines Company and we explained our position. That Mr. Miller had committed himself to Mr. Sam Raines to the effect that if he left E. E. Raines Company we would give him the representation of our companies. That this was a commitment...
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