Robinson v. Benbow

• Citation: 298 F. 561
• Decision Date: 06 May 1924
• Docket Number: 2191.
• Parties: ROBINSON et al. v. BENBOW.
• Court: U.S. Court of Appeals — Fourth Circuit

298 F. 561

ROBINSON et al. v. BENBOW.

No. 2191.

United States Court of Appeals, Fourth Circuit.

May 6, 1924

Louis M. Swink, of Winston-Salem, N.C., and Hartwell Cabell, of New York City (Isaac M. Meekins, of Elizabeth City, N.C., on the brief), for appellants.

Sidney S. Alderman and William P. Bynum, both of Greensboro, N.C (Frank P. Hobgood, Jr., of Greensboro, N.C., on the brief) for appellee.

Aubrey L. Brooks, of Greensboro, N.C. (Brooks, Parker & Smith, of Greensboro, N.C., on the brief), for Hartford Fire Ins. Co.

Before WOODS, WADDILL, and ROSE, Circuit Judges.

ROSE Circuit Judge.

The Dixie Fire Insurance Company, hereinafter called the Dixie is a North Carolina corporation with its principal offices at Greensboro, in the Western district of that state. It has outstanding 10,000 shares of capital stock each of the par value of $50. The appellants are all citizens of North Carolina and were defendants below together with the Dixie and the Hartford Fire Insurance Company, a Connecticut corporation which for brevity will be styled the Hartford. The appellants by blood or by marriage are all connected with the Blades family, well known in the Eastern section of North Carolina. The six of them, nine of their relatives, and two corporations controlled by them, together own 5,177 shares of the Dixie stock. At the time this litigation began they were authorized to vote for twenty-two other stockholders, holding an aggregate of 418 shares, so that they represented 39 separate stockholders holding in all 5,595 shares or but a shade under 56 per cent. of the entire capital of the Dixie.

The appellee, Charles D. Benbow, was plaintiff below. He is a citizen of Florida and holds 225 shares of the Dixie stock. He is one of its directors and is a member of its executive committee. At least six other stockholders, all of whom are directors and three of whom are members of its executive committee, are shown by the record to be in sympathy with him. There are doubtless other shareholders who are of like mind, but who they are, what is their number, and the extent of their holdings, is not disclosed.

The controversy here to be passed upon arose out of a contract which the plaintiff and the majority both of the executive committee of the Dixie and of its directors claim was made between it and the Hartford. The Blades group, on the other hand, assert that those who in the name of the Dixie assumed to enter into that contract had no legal authority to do so and that the Dixie is not bound by it.

The Benbow party say that the Dixie is legally obligated by the contract, and that the arrangement made thereby is highly advantageous to the corporation, and they contend that if the Blades group are permitted to elect officers and directors who will seek to ignore it or to set it aside, great and irreparable damage will be done to the Dixie and to all those who hold its stock.

The learned court below held that Benbow had established the truth of these allegations, and in order to prevent the holders of the majority of the stock from doing what they wished to do, enjoined them, among other things, from doing anything to question the binding force of the contract at any time in the entire five years during which it was by its terms to run.

Before discussing the legal questions to be passed upon, it will be worth while briefly to summarize the events which led to the present controversy. Eighteen years ago, the Blades group or the members of their connection from whom their Dixie stock came had much to do with the organization of that corporation and of another fire insurance company which afterwards merged with it. It does not appear that at any time before early March, 1923, this group ever actually held as much as 50 per cent. of the Dixie stock, but their holdings of upwards of 40 per cent. were very much greater than those of any other group accustomed to act together, so that they were at all times so influential in its affairs that it would never have been easy to commit it to any course of action to which they were opposed. It so happens, however, that prior to the 11th of February, 1923, there never had been occasion to muster votes on any question. Everything seems always to have been done by unanimous consent or, at all events, without the registration of any objection. In their earlier years, neither the Dixie nor the other company with which it was consolidated prospered. Indeed, a substantial part of the money originally invested in them was lost. They were united in an attempt to give them a better chance. Shortly after they were brought together, the Blades group induced a Mr. Bush, who then lived in Newark, N.J., and who was an experienced fire underwriter, to come to Greensboro and to take charge of the Dixie's insurance line. A few years later, he was made president of the company and has ever since held that position. Before February 12, 1923, the relations between him and the Blades group appear to have been cordial. They, or some of them, had recently lent him money to buy additional stock in the company. Under his management it had done well. It had accumulated a substantial surplus and had paid dividends at the rate of 6 per cent. on the capital remaining at the time of the consolidation, but which rate was the equivalent of but 3 per cent. on the money once invested in the two companies.

At least one of the original Blades group had died. The survivors resided for the most part in a relatively distant part of the state. They were content with two of the six members of the executive committee and with three out of the ten directors. Of the other four members of the committee, one was the plaintiff, of late years a resident of Florida, and the other three were salaried officers or employees of the company. They were Bush, its president, Brooks, its general counsel, and one Latham. Of these only the president, whose salary was $17,500, was in receipt of any large compensation. As none of the members of the Blades group took much if any part in the day by day management of the Dixie, they had come to look upon it merely as a place in which they had a large investment which was yielding a rather small return. They had begun to feel and to say that they would like to get their money out and to put it in some of the enterprises in Eastern North Carolina with which they were in intimate touch and from which they thought they were in a better position to profit. They do not appear to have been altogether alone in their feeling that the stock was not a specially attractive investment. A Mr. Hopkins, who was one of the directors who took the side of Benbow and Bush, when the division came, seemed to have been pretty much of the same mind. He, too, was talking about selling out unless something was done to improve the prospects of the company. He apparently had come to think it might be a good idea to work out some arrangement by which the Dixie would become an ally of some larger insurance company or a feeder for it. He appears to have brought up the subject in several conversations he had with a Mr. Prescott who resided at Atlanta and who was the Southern representative of the Hartford. As a result of these interviews, he concluded that the Hartford might make a deal with the Dixie of advantage to the latter. He told Bush so and urged him to see Prescott. On the next day, which was January 23, 1923, Bush was in Atlanta and talked with Prescott on the subject. Both of them obviously felt it worth while to go further, and Prescott arranged for an interview between Bush and Bissell, president of the Hartford. This was held on Friday, February 9th, and they went over the whole matter and reached a mutually satisfactory understanding, the essence of which was that the Hartford would reinsure 90 per cent. of substantially all the Dixie's outstanding risks and of all the latter should write in the next five years, and that in order that the Hartford should itself determine what risks should be assumed during that period by the Dixie the latter would delegate to the former during the continuance of the contract the right to select, control, and fix the compensation of all its underwriting officers and agents. There were many other things agreed upon, as, for example, as to what return, fixed and contingent, should be made by the Hartford to the Dixie, as to the renewal of the contract if it was renewed, and if the Dixie at the end of the five years wanted to put an end to it, what it would have to pay the Hartford for the privilege of so doing, and as to many other details perhaps of lesser but still of real importance. Some of the matters to be dealt with were highly technical, and some of the provisions to be made for them would necessarily be both lengthy and not easily comprehensible by anyone not an experienced underwriter. To reduce to writing the understanding reached some time in the afternoon of Friday, the 9th of February, would necessarily take some hours, and so far as Bush was concerned, time was of the shortest.

The annual meeting of the stockholders of the Dixie was scheduled for the succeeding Wednesday, the 14th. Bissell's testimony makes it clear that when they parted on that Friday afternoon, both he and Bush intended to lay the proposed contract before this meeting for its approval. Less than five days remained before it was to be held, one of them a Sunday and another Saturday, a half holiday. Up to this time Bush had not told any of the Blades group that he was thinking of making a deal with the Hartford of any kind, and indeed until after his talk with Bissell, there was little or nothing he could have told them or any one.

It was practically certain that the Blades group would vote the majority of...