Schaffer v. Universal Rundle Corporation

• Decision Date: 12 August 1968
• Docket Number: No. 25034.,25034.
• Parties: Victor SCHAFFER et al., Appellants, v. UNIVERSAL RUNDLE CORPORATION, Appellee. UNIVERSAL RUNDLE CORPORATION, Appellant, v. Victor SCHAFFER et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

397 F.2d 893 (1968)

Victor SCHAFFER et al., Appellants, v. UNIVERSAL RUNDLE CORPORATION, Appellee.

UNIVERSAL RUNDLE CORPORATION, Appellant, v. Victor SCHAFFER et al., Appellees.

No. 25034.

United States Court of Appeals Fifth Circuit.

June 27, 1968.

Rehearing Denied August 12, 1968.

Jim Ammerman, Franklin Jones, Jr., Franklin Jones, Sr., Marshall, Tex., Jones, Jones & Baldwin, Marshall, Tex., for appellants.

Tom B. Ramey, Jr., Tyler, Tex., Burton Y. Weitzenfeld, James R. Fruchterman, Chicago, Ill., Ramey, Brelsford, Flock & Devereux, Tyler, Tex., Arnstein, Gluck, Weitzenfeld & Minow, Chicago, Ill., of counsel, for appellee.

Before RIVES, BELL and GOLDBERG, Circuit Judges.

RIVES, Circuit Judge:

Victor Schaffer and Mechanical Wholesale, Inc. sued Universal Rundle Corporation seeking damages for an alleged breach of contract and treble damages and attorneys' fees¹ for violations of the Sherman Act² and of the Robinson-Patman Act.³ After a full trial, the jury returned the following verdict:

"We, the Jury, find for the Plaintiffs and against the Defendant and assess damages in the sum of Seventy Thousand Dollars.

"1.

"Did the Defendant conspire with Universal-Southwest, Inc. to restrain the trade of the Plaintiffs by means of seeking to induce Porter Plumbing & Heating of Austin, Texas, to withdraw the purchase order of February 2, 1965, from the Plaintiffs and place it with Universal-Southwest, Inc.?

"ANSWER `YES\' OR `NO\'

"ANSWER: YES

"2.

"Did the Defendant discriminate in favor of Universal-Southwest, Inc. over the Plaintiffs by refusing to execute the warranty on the purchase order of February 2, 1965 with Mechanical Wholesale, Inc. as the contractor, but offering to execute the same if the purchase order should be given to said Universal-Southwest, Inc.?

"ANSWER `YES\' OR `NO\'

"ANSWER: YES

"Oct. 28, 1966 "Date /s/ J. P. GARRETT Foreman"

Upon that verdict, the court entered judgment for the plaintiffs in the sum of $70,000.00 and costs, but declined to enter judgment for treble damages and attorneys' fees upon a finding "that the plaintiffs did not discharge their burden in proving that the defendant discriminated against the plaintiffs in violation of the Robinson-Patman Act, and or to have conspired with others in restraint of trade in violation of the Sherman Antitrust Act." All parties appeal.⁴

Rundle is a manufacturer of plumbing fixtures. Schaffer is the sole stockholder of Mechanical, which opened in Austin, Texas, on November 2, 1964, a wholesale plumbing supply business. Mechanical became a distributor for Rundle, as well as for other manufacturers.

In mid-November 1964, a few weeks after Mechanical's opening, Rundle approached Mechanical regarding a government construction project at Fort Hood, Texas, consisting of the construction of some ten enlisted men's barracks and other buildings.

W. S. Bellows Construction Company had received the general contract for that job. Rundle, through Elmer Harber, its Regional Sales Manager, and Ralph Wallace, a sales representative, suggested to Schaffer that Mechanical submit a bid on the plumbing fixtures and accessories for that job to Porter Plumbing & Heating Co., a prospective mechanical contractor. When Schaffer hesitated, due to the size of the job, and the short time involved, Harber provided a "take-off"⁵ already prepared by Rundle's Dallas wholesale distributor, who had abandoned attempts to get the job, and by a Dallas employee of Rundle.

The equipment required for the job included plumbing fixtures and accessories. Rundle neither manufactures nor sells the latter, which comprised about half of the total amount involved monetarily. Schaffer obtained price information on the accessories from other manufacturers, combined that with the information he had on the Rundle fixtures and submitted estimates to Porter. He was assisted by Wallace. Discussion and revisions apparently went on until late December, with other wholesalers also in contact with Porter during this period. Porter was awarded the mechanical contract in late December.

Porter tendered to Mechanical a purchase order in early February 1965 for some 1700 fixture units at a total price of about $75,000.00. Rundle's products accounted for a little more than one-half of this amount, or approximately $38,000.00. Porter attached to the order an instrument to be signed by an official of Rundle, as follows:

"The attached Supplement is to be a part of this purchase order. For the purpose of this Purchase Order Only, Universal-Rundle Corp., designates and appoints Mechanical Wholesale, Inc., of Austin, Texas, its agent; and obligates itself to Porter Plumbing and Heating to accept, with said agent, the responsibility for timely deliveries of this order, to guarantee the materials for one year after date of installation and to hold Porter Plumbing and Heating harmless for all payments made for its benefit to said agent. This obligation shall inure to the benefit of General Contractor on the EM Barracks Complex at Fort Hood, Texas, where the subject fixtures and equipment are to be installed.

UNIVERSAL-RUNDLE CORP. By Title: . . . . . . . ."

Ultimately Rundle's refusal to sign that instrument caused Mechanical to lose this large purchase order. Schaffer and Mechanical claim additional damages due to the impairment of the business reputation of the plaintiffs.

Without belaboring the testimony, we agree with the district court that the evidence made a case for the jury as to whether Rundle had orally obligated itself to Mechanical to enter into a contract in substance the same as that presented for Rundle's signature, and as to whether Wallace and Harber had actual or apparent authority so to obligate Rundle. We hold, however, that Schaffer was not a proper party-plaintiff.

The general rule is, of course, well established that an action to redress injuries to a corporation, whether arising out of contract or tort, cannot be maintained by a stockholder in his own name but must be brought in the name of the corporation, since the cause of action being in the corporation, the stockholder's rights are merely derivative and can be asserted only through the corporation.⁶ The general rule is applicable in cases where the individual is the sole stockholder.⁷ The rule does not apply in a case where the stockholder shows a violation of duty owed directly to him.⁸ That exception to the general rule does not arise, however, merely because the acts complained of resulted in damage both to the corporation and to the stockholder, but is confined to cases where the wrong itself amounts to a breach of duty owed to the stockholder personally.⁹

The general rule was applied by this Court in an action by sole stockholders as individual plaintiffs for treble damages under the antitrust acts in Martens v. Barrett, 5 Cir. 1956, 245 F.2d 844, 846:

"And it is universal that where the business or property allegedly interfered with by forbidden practices is that being done and carried on by a corporation, it is that corporation alone, and not its stockholders (few or many), officers, directors, creditors or licensors, who has a right of recovery, even though in an economic sense real harm may well be sustained as the impact of such wrongful acts bring about reduced earnings, lower salaries, bonuses, injury to general business reputation, or diminution in the value of ownership." (Footnotes omitted.)¹⁰

The evidence disclosed no breach of duty owed directly to Schaffer individually. In brief, he argues simply that "Victor Schaffer owned all of the stock of Mechanical Wholesale, Inc., and a damage to its good will and reputation was necessarily a damage to his." Under the authorities heretofore cited, that consideration does not afford to Schaffer any right of action in his own name.

Schaffer and Mechanical then resort to the...