Saigh ex rel. Anheuser-Busch, Inc. v. Busch

• Decision Date: 21 September 1965
• Docket Number: INC,ANHEUSER-BUSC,No. 31884,31884
• Citation: 396 S.W.2d 9
• Parties: Fred SAIGH and Elizabeth Saigh, (Plaintiffs) Appellants, By Relation to, a Corporation, Nominal Defendant Under Rule 52.04(a), v. August A. BUSCH, Jr., (Defendant) Respondent.
• Court: Missouri Court of Appeals

Page 9

396 S.W.2d 9

Fred SAIGH and Elizabeth Saigh, (Plaintiffs) Appellants, By Relation to ANHEUSER-BUSCH, INC., a Corporation, Nominal Defendant Under Rule 52.04(a), v. August A. BUSCH, Jr., (Defendant) Respondent.

No. 31884.

St. Louis Court of Appeals, Missouri.

Sept. 21, 1965.

Rehearing Denied Oct. 20, 1965.

Application to Transfer Denied Dec. 13, 1965.

Lon Hocker, Hocker, Goodwin & MacGreevy, St. Louis, for appellants.

Mark D. Eagleton, J. J. Thyson, Albert J. Stephan, Jr., Roberts P. Elam, Harry W. Kroeger, Arthur B. Shepley, St. Louis, for respondent.

RUDDY, Judge.

This is a stockholders' derivative action. The petition before us for scrutiny is the second amended petition, as amended by plaintiffs, which is in two counts. The trial court, pursuant to Civil Rule 82.06, V.A.M.R., and to a stipulation signed by all the parties, ordered a separate trial of the issues raised under Count I and further ordered the judgment rendered under Count I, after hearing, to be deemed a final judgment for purposes of appeal within the meaning of Sec. 512.020 RSMo 1959, Vol. 33 V.A.M.S. An appeal by plaintiffs from a judgment adverse to them on Count I of their second amended petition is pending in the Supreme Court of Missouri as Cause No. 50622.

The instant appeal before us is by plaintiffs from a judgment on Count II wherein the trial court sustained the motion of defendant August A. Busch, Jr., to dismiss Count II, and dismissed said Count II 'with prejudice.'

Following this ruling by the court plaintiffs filed a motion for leave to amend Count II of their second amended petition as amended by them and for a determination of the time within which such amendment shall be made. This motion for leave to amend was overruled.

This suit was instituted by Fred Saigh and Elizabeth Saigh as stockholders of Anheuser-Busch, Inc., as a class action against August A. Busch, Jr., an individual defendant, and Anheuser-Busch, Inc., a corporation, designated by plaintiffs as a nominal defendant under Civil Rule 52.04(a). Count I of plaintiffs' action sought to set aside a sale by Anheuser-Busch, Inc., to defendant August A. Busch, Jr., of 26,121 shares of its common capital stock. It was alleged that the sale was made pursuant to an employee stock option contract between the corporation and August A. Busch, Jr.

The general nature of the allegations in Count II, which is the count before us for examination and decision, is that August A. Busch, Jr., as President of the nominal defendant is receiving salary and perquisites which are excessive and not based on the reasonable value of his services as president of the corporation.

Defendant August A. Busch, Jr., (who will be referred to hereinafter as defendant Busch, and Anheuser-Busch, Inc., will be referred to hereinafter as the nominal defendant) by his motion to dismiss attacks the sufficiency of the allegations in Count II of plaintiffs' second amended petition and in support of his motion to dismiss states: 'That the plaintiffs failed to allege in Count II of said Second Amended Petition that plaintiffs have sought relief from the other shareholders of the nominal defendant, Anheuser-Busch, Inc., or to state facts showing why plaintiffs failed to seek such relief; that by reason thereof plaintiffs failed to state a cause of action against this defendant under said Count II.' As we have said, the trial court sustained this motion and dismissed said Count II 'with prejudice.' This attack by defendant Busch and the action of the trial court requires an examination of the allegations contained in Count II of plaintiffs' petition. In the interest of clarity and for a better understanding of our ruling, we quote the pertinent parts of plaintiffs' petition related to Count II thereof:

'1. Plaintiffs are and have been since prior to January 1, 1954, the owners of shares of common stock of Anheuser-Busch, Inc., in the following amounts:

Fred Saigh 30,000 shares

Elizabeth Saigh 1,600 shares

'2. Defendant [Busch] is and at all times set out herein has been President of Anheuser-Busch, Inc., and since April 11, 1956, has been Chairman of the Board of Directors.

'3. It would be useless either to seek the relief called for in this second amended petition by application to the Board of Directors of the nominal defendant or to request of such Board or the officers the consent of Anheuser-Busch, Inc., to join as plaintiff in this action or to seek to enforce the rights set out herein which may properly be asserted by it; and it is therefore joined as a nominal defendant under Rule 52.04(a), Missouri Rules of Civil Procedure.

'4. Plaintiffs bring this action for themselves and in behalf of the class of shareholders of the nominal defendant or so many thereof as are similarly situated to the plaintiffs. The plaintiffs were shareholders at the time of each of the transactions of which they complain. The members of the class of plaintiffs are very numerous, and it would be impracticable to bring, them all before this Court, and plaintiffs will fairly insure adequate representation of all.

'5. The nominal defendant, at the instance of the defendant, sold to defendant on July 29, 1960, 21,121 shares, and on August 8, 1960, 5,000 shares of the common stock of Anheuser-Busch, Inc., which had previously been authorized but unissued, without having first offered the same to the plaintiffs and other shareholders, proportionately, and at the price of $25.30 per share, whereas the known market value of such shares on said dates was $34.00.

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* * *

'COUNT II

'9. Plaintiffs reassert as a part of Count II the allegations of Paragraphs 1, 2, 3, 4 and 5 of Count I.

'10. The members of the Board of Directors of Anheuser-Busch, Inc., are selected for nomination and caused to be elected by defendant, and with respect to the compensation and perquisites of the defendant [Busch] and respecting the sale by the nominal defendant of shares of its stock to defendant [Busch] are and at all times mentioned herein have been influenced and controlled by him.

'11. Since January 1, 1954, the nominal defendant has rendered to him, and for him, and to and for members of his family and relatives, benefits in the form of salary, bonuses, stock purchase options, expense allowances not to be accounted for, reimbursements and payments vouchered by him, and by other employees at his direction, rentals, personal club dues and initiation fees, the provision of life insurance, retirement annuity, yachts, private railroad cars, private automobiles, busses, residences, the use of theatre and stadium homes and enclosures, servants, legal and accounting services, materials and supplies, and in the expenditure of large sums of money in promoting and giving publicity to the name of the defendant, and in identifying him in the minds of the public with the ownership of properties and facilities of the nominal defendant and with the donations and benefactions of the nominal defendant, and, as plaintiffs verily believe, in other ways not known to them, in a total amount which is not known to the plaintiffs, and which plaintiffs cannot determine without an audit of the records of the nominal defendant and of the defendant; but which is far in excess of the reasonable value of defendant's services as President of the nominal defendant.

'12. The action desired by plaintiffs could not have been obtained from the shareholders of the corporation;

'(a) for the reason that such action is an action which under the law must be taken by the Board of Directors and is not within the power of shareholders as a body; and

'(b) for the further reason that it was and is impossible for the plaintiffs to secure the election by the shareholders of a different Board of Directors in an effort to obtain the action sought by the plaintiffs:

'i. because the members of the Board of Directors, and especially the individual defendant, as owners, as trustees, and as proxies, have the right to vote very large blocks of stock of the defendant;

'ii. because the Board of Directors and the individual defendant have access to and the use of the funds of the corporation for the purpose of soliciting proxies in behalf of themselves and their own nominees as the management of the corporation, and the prestige which the incumbency of their office gives them as management of the corporation, and thus effectively control the communications between the corporation and its very large number of, and constantly changing list of, shareholders;

'iii. because, notwithstanding repeated requests by individual shareholders, the Directors of the corporation and the individual defendant have refused to register the stock of the corporation on any National Securities Exchange; and therefore the solicitation of proxies by the Directors and the individual defendant is not subject to the limitations of the proxy rules of the Securities and Exchange Commission.

'iv. because, by avoiding the necessity of compliance with the proxy rules aforesaid, the Board of Directors and defendant Busch escape disclosure to the shareholders of the information required by Schedule 14 A of said rules, including details of the perquisites and remuneration of the directors, including that of defendant Busch.

'v. because by avoiding the necessity of compliance with the proxy rules aforesaid, the Board of Directors and defendant Busch escape the necessity of mailing to shareholders opposition proxies and opposition proxy solicitation material, and the necessity of including propositions of minority shareholders in the proxy solicitation material paid for by the corporation, and the other requirements of the proxy rules designed to facilitate communication between stockholders respecting the necessity for such action as is sought in this matter.

'vi. because of the foregoing, and of the great cost and necessary ineffectiveness of a personal proxy solicitation at individual expense, in...