Randolph Foods, Inc. v. McLaughlin

• Citation: 253 Iowa 1258,115 N.W.2d 868
• Decision Date: 12 June 1962
• Docket Number: No. 50059,50059
• Parties: RANDOLPH FOODS, INCORPORATED, Plaintiff, v. E. H. McLAUGHLIN, Defendant; Howard Randolph and Central Iowa Poultry & Egg Company, Incorporated, Cross Defendants. Howard RANDOLPH, Plaintiff, v. E. H. McLAUGHLIN, Defendant; Randolph Foods, Incorporated, Defendant to Cross Petition.
• Court: United States State Supreme Court of Iowa

Page 868

115 N.W.2d 868

253 Iowa 1258

RANDOLPH FOODS, INCORPORATED, Plaintiff, v. E. H. McLAUGHLIN, Defendant;

Howard Randolph and Central Iowa Poultry & Egg Company, Incorporated, Cross Defendants.

Howard RANDOLPH, Plaintiff, v. E. H. McLAUGHLIN, Defendant;

Randolph Foods, Incorporated, Defendant to Cross Petition.

No. 50059.

Supreme Court of Iowa.

June 12, 1962.

Frank R. Thompson, Guthrie Center, and Walter R. Brown, Des Moines, for appellants.

Taylor & Taylor, Guthrie Center, and Steward, Crouch & Hopkins, Des Moines, for appellee.

THOMPSON, Justice.

The first impression gained from a survey of the record in this case is that there ought to be a better way for the parties to settle their differences. The printed record contains 2128 pages, and there are many hundreds of pages of briefs and arguments. This, perhaps, while unusual, would not be so striking were it not for the fact that after the issues which were tried in a hearing lasting over one month in the district court have finally been determined, many others remain for decision in another trial.

An added complication is found in the fact the parties are not agreed upon what was actually tried and determined below. The trial court itself was in some doubt as to this; so that after entering judgment in accordance with its findings of fact and conclusions of law, upon its own motion it amended the order a few days later and eliminated the judgment. This brings about one of the much disputed questions upon the cross-appeal.

The pleadings are voluminous. The parties attacked and counter-attacked at length, leaving no word unwritten which could by any possibility be thought to aid their respective cases. As one able trial court who made many preliminary rulings, remarked, it seemed to be a matter of principle for each side to contest whatever the other suggested or offered or was willing to agree to. The result has been a most difficult problem both for the trial court and ourselves.

I. What has been tried to date, and is involved in this appeal, is an accounting procedure, in which the original defendant in each case, McLaughlin, is in effect the plaintiff by virtue of his cross-petitions. Involved are two actions, Nos. 15,312 and 15,313 in the Guthrie District Court. The first was commenced on September 9, 1955, by Randolph Foods, Inc., against the defendant McLaughlin, asking damages for breach of a contract of employment. The second was started on September 15, 1955, by Howard Randolph, the president and chief stockholder of Randolph Foods, Inc., but in his individual capacity, seeking to recover rentals under a lease contract with McLaughlin covering a house in Guthrie Center.

Each suit brought from McLaughlin an answer and cross-petition. By cross-petition also McLaughlin brought in Central Iowa Poultry and Egg Company, Inc., as a third party defendant. Replies were filed to the cross-petitions, with many amendments to various pleadings. The cross-petitions against Randolph Foods, Inc., and against Howard Randolph individually, in cases Nos. 15,312 and 15,313, respectively, alleged that McLaughlin was entitled to a 25% share of the net income of the corporation Randolph Foods, Inc., for the period from July 1, 1954 to August 29, 1955, during which time McLaughlin was employed by the corporation under a contract of employment negotiated with and executed by Howard Randolph personally. An accounting of the net income was asked in each case. The cross-petition against Central Iowa Poultry and Egg Company, Inc., hereafter referred to as CIPE, alleged it was a wholly owned subsidiary of Randolph Foods, Inc. and its profits were in fact the profits of that corporation, which will hereafter be known as Foods. Howard Randolph will be referred to as Randolph.

The contract between Randolph and McLaughlin was executed under date of March 26, 1954. A copy was attached to plaintiff's petition in case No. 15,312, and it appears in the record as Exhibit D-1. Space does not permit setting it out in full, but pertinent provisions will be referred to as they become material hereafter. It provided that Randolph would incorporate his business then being operated by him at Guthrie Center, Iowa, as of July 1, 1954; that McLaughlin would be employed by the corporation as assistant general manager at a salary of $12,000 per year, plus a bonus of 25% of the net income of the corporation, to be computed after setting aside $20,000 annual salary for Randolph and taxes; and the term of McLaughlin's employment was to be for five years from July 1, 1954.

Foods' petition in case No. 15,312 alleged breach of his employment agreement by McLaughlin by leaving the corporation on August 29, 1955, and in a separate count that he had removed certain papers and records of Foods. Damages were asked in each count. The contract also provided that Randolph would construct a residence for McLaughlin in Guthrie Center, for which the defendant would pay rental of 10% of the cost. Case No. 15,313 alleged the defendant had removed from the house and refused to pay rental after September, 1955, and asked judgment for unpaid rentals. McLaughlin also asked in his cross-petitions for judgment for alleged unpaid salary for some weeks immediately prior to August 29, 1955, when he left Foods' employ. It was recognized that the matters referred to in this paragraph are law issues and they still remain for decision. Nothing said in this opinion is intended to have any significance as to what those decisions should be.

II. It is important first to decide exactly what was tried and decided in the long hearing which has already been had. Without question it was concerned solely with the accounting demanded by McLaughlin, both against Foods, case No. 15,312, and Randolph, in No. 15,313. Whether there is in fact personal liability on Randolph's part to account for 25% of the net income of Foods during the period from July 1, 1954, to August 29, 1955, is another question which must be the subject of a later division of this opinion. We shall here consider whether the trial court, having made its determination of the net income, should have entered a judgment therefor with execution withheld until the trial of the other issues reserved, as it first did; or whether its second and final ruling, which withdrew the judgment and left its decision merely a finding of facts to be followed in the later trial, was correct. The question is raised by McLaughlin in his cross-appeal. It must be kept in mind that McLaughlin, although the nominal defendant in each case, is in fact as to the issue of accounting in the position of plaintiff. It is he who is asking for the accounting relief.

This division will be devoted to determining the disputed question of what in fact was tried. McLaughlin thinks the court was in error in setting aside the judgment first entered, and we are disposed to agree. The matter of exactly what was being tried was not made entirely clear; but we think it sufficiently appears that, as Judge Prall, who ruled on many preliminary matters, said at one point: 'The effect (of a ruling then made) also will be to leave in equity only the proposition of accounting for the profits for the period the defendant actually worked under the contract upon which this cause of action is based.' The record also shows this: 'On November 4, 1957, the trial of consolidated cases commenced by taking evidence on the accounting phase of the case, the same being tried in equity * * *.'

The accounting issues, so far as they pertained to the period McLaughlin was actually in employment, were thus tried in the action now before us. Accounting for future profits--that is, those which McLaughlin might have earned after August 29, 1955, if he had continued his employment for the full five year period--are not involved here but are reserved with other issues.

The general rule is that the burden is upon one who claims a right to an accounting to prove such right. Meier v. Johannsen, 242 Iowa 665, 671, 672, 47 N.W.2d 793, 797, and citations. But here the duty arose from the contract of employment, Exhibit D-1. This contract was pleaded and relied upon by Foods; it was admitted and likewise relied upon by McLaughlin. In fact, in their opening statements counsel for Foods and Randolph in substance admitted a duty to account. This was no more than making a virtue of necessity. In fact, the court had no right to try the accounting until the duty to account was established; and it appears that all parties in effect conceded such duty rested upon the plaintiff--the defendants in the accounting actions--by proceeding to try that issue. It is not too much to say that all rights of all parties depend upon Exhibit D-1 and its liabilities or breaches.

The burden of accounting, as above stated, generally is upon the one who asks an accounting. But there is a well established exception to this rule. The duty falls upon the defendant in an accounting action when the proceeding is in the nature of a discovery; that is, when the proof is peculiarly in the knowledge of the defendant and the plaintiff does not have adequate or equal means of producing it. Meier v. Johannsen, supra. It is evident in the case before us that Foods and Randolph had control of the books of Foods and McLaughlin did not. The means of accounting was in the hands of the defendants in the accounting action--that is to say, of Foods and Randolph. The defendants in the accounting phases of the actions--Foods and Randolph--urge that the trial having been in equity, the trial here is de novo; and further, that although the records were all in their possession and had been kept by them and so it may have been their duty to produce them, this having been done the burden remained on McLaughlin, the plaintiff in accounting, to show his right to recover. That is to say, the burden of going forward with the evidence may have devolved upon Foods and Randolph in...