Schick v. Riemer

• Decision Date: 15 December 1953
• Docket Number: No. 28646,28646
• Citation: 263 S.W.2d 51
• Parties: SCHICK et al. v. RIEMER et al.
• Court: Missouri Court of Appeals

Page 51

263 S.W.2d 51

SCHICK et al. v. RIEMER et al.

No. 28646.

St. Louis Court of Appeals, Missouri.

Dec. 15, 1953.

Rehearing Denied Jan. 15, 1954.

Roberts P. Elam, Clifford Greve, St. Louis, for appellants.

Coburn, Storckman & Croft, Clem F. Storckman, St. Louis, for respondents.

HOUSER, Commissioner.

This is a suit by Harry Schick and Walter Ennis, minority stockholders, against Francis Riemer, the majority stockholder, Carl J. Stay and F. Lee Riemer, stockholders, and against the corporation itself, in which plaintiffs seek judgment on the theory that a single, dominant, majority and controlling stockholder has no legal right to vote to pay himself and his subservient nominee assets out of the corporate treasury without the knowledge and approval of, ratification by, or discussion with substantial minority stockholders. The trial court entered a decree for defendants and plaintiffs have appealed.

Genuine Motor Parts, Inc., was incorporated in 1940 by Francis Riemer, Harry Schick and Walter Ennis. All three signed a contract with the Perfect Circle Company in which they agreed that Genuine Motor Parts, Inc. would execute a note for $5,000 to the Perfect Circule Company. Under the terms of the contract Perfect Circle Company advanced $5,000 to Genuine Motor Parts, Inc., which constituted the capital with which the latter concern commenced operations. One thousand shares of stock were authorized and 500 were issued. Two hundred fifty-five shares were issued to Francis Riemer, 122 1/2 shares to Schick and 122 1/2 shares to Ennis. The three constituted the original board of directors. The company prospered and in 1943 by resolution proposed by Schick and Ennis a dividend of $38.60 per share was voted, pursuant to which $19,300 was distributed. Each of the three drew a salary of $3,900. After the 1943 dividend was declared the 500 shares of unissued stock were sold. Since 1944 the 1,000 shares of capital stock have been held as follows: Francis Riemer, 507 shares; Carl J. Stay, 245 shares; Harry Schick, 122 1/2 shares; Walter Ennis, 122 1/2 shares; Lee Riemer, 3 shares. Prior to the issuance of the 500 shares of unissued stock Francis Riemer transferred one of his 255 shares of stock to his wife and she was elected to the board of directors. Plaintiffs Harry Schick and Walter Ennis thereupon withdrew from active participation as salaried employees of the corporation, and later Carl J. Stay was elected a director, as a result of which plaintiffs were both excluded as directors. Following the declaration of the dividend in 1943 no further dividends were declared during the ensuing 8-year period. The salaries of Francis Riemer and Carl J. Stay were fixed at $125 per week in 1944 by action of the board of directors without consulting plaintiffs, and a resolution adopted in 1945 by the board of directors provided for the payment of a bonus to Francis Riemer and Carl J. Stay of 'one-third share each in profits in excess of $4,000 before income taxes.' The additional compensation paid by way of bonus to each, Francis Riemer and Carl J. Stay, was as follows: 1946, $3,916.94; 1947, $5,628.67; 1948, $2,432.36.

Our first concern is whether this court has jurisdiction on the ground of the amount in dispute. We have determined that this court and not the Supreme Court has jurisdiction for the reason that less than $7,500 is in controversy. The two plaintiffs are seeking personal judgments for themselves for their part of the $23,955.94 which they claim was improperly paid to Francis Riemer and Carl J. Stay in excessive salaries and bonuses, according to the proportion that their 245 shares bear to the 1,000 shares outstanding. The amount in controversy, therefore, even if we should consider both their interests together, could in no event exceed $5,869.21, which is 245/1000 of $23,955.94. Had this action been a true stockholders' derivative action filed on behalf of the corporation to compel the directors to return to the corporation improper payments of excessive salaries and bonuses, the jurisdiction of this appeal would have been in the Supreme Court on the ground that the relief sought would involve a loss to the individual defendants in excess of $7,500, Merrill v. Davis, 359 Mo. 1191, 225 S.W.2d 763; Webb v. Cotton, 308 Mo. 272, 271 S.W. 768, but the pleadings, proof and record do not disclose that this is a stockholders' derivative action. Consequently this court retains jurisdiction, and as a further result the pleaded defense that the petition does not state a claim upon which relief can be granted must be sustained and the decree for defendants accordingly affirmed.

This is an action by minority stockholders against the corporation and against the directors and officers of the corporation based upon their alleged wilful, wrongful and unlawful appropriation and diversion of corporate funds to their own personal use and benefit and their failure to pay dividends to the complaining minority stockholders. The charging part of the petition alleges that the individual defendants Francis Riemer and Carl J. Stay wrongfully and unlawfully 'and in violation of the rights of the plaintiffs as minority stockholders' voted excessive salaries and bonuses, diverted profits, improperly mismanaged the business and failed to declare dividends. The petition alleges that under their domination the gross volume of business and net profits decreased as a result of their improper management 'to the detriment and loss of plaintiffs'; that plaintiffs' investment in the corporation was substantial and is in serious jeopardy of being dissipated and wasted and that a continuation of the management of the affairs of the corporation by the individual defendants 'will result in irreparable loss and damage to the plaintiffs.' While plaintiffs further alleged that other stockholders and creditors of the corporation would sustain irreparable loss, plaintiffs did not purport to sue for them. The prayer of the petition was for an accounting of all of the assets and liabilities of the defendant corporation 'and of the liabilities of the individual defendants to the defendant corporation,' for the appointment of a receiver to manage the business, to preserve and protect the assets of the corporation, and that upon an accounting, each of the plaintiffs have 'judgment against the defendants, or any or all of them, for such sum or sums as may be found to be due and owing to each of the plaintiffs from each and any of the defendants, and for plaintiffs' damages * * *.' (Emphasis ours.)

At the commencement of the trial plaintiffs abandoned their effort to obtain the appointment of a receiver, agreed that there would be no attack on the accuracy and correctness of the annual financial statements of the corporation, limited the scope of the evidence to the issue of whether the business was being operated properly, and in answer to a question by the court whether the effort was to require the individual defendants to account or to restore the alleged excessive compensation paid to the officers, counsel for plaintiff stated that they wanted the individual defendants to account to the corporation. They further indicated that there would be no evidence on the question of mismanagement.

Stockholders of a corporation cannot in their own right and for their own personal use and benefit maintain an action for the recovery of corporate funds or property improperly diverted or appropriated by the officers and directors of the corporation. In the eyes of the law the injury is to the corporation (i. e. to the stockholders collectively) and not to the stockholders individually. Fletcher, Cyclopedia of Corporations, Per.Ed., Vol. 3, Ch. 11, Sec. 1282; Idem, Vol. 13, Ch. 58, Secs. 5913, 5924. The right to maintain the suit is a right of the corporation. Punch v. Hipolite Co., 340 Mo. 53, 100 S.W.2d 878; Bulkley v. Big Muddy Iron Co., 77 Mo. 105; Porter v. Sabin, 149 U.S. 473, 13 S.Ct. 1008, 37 L.Ed. 815. There are two principal reasons for denying the right to stockholders. In the first place, a judgment in favor of one stockholder would be no bar to the maintenance of an action by a creditor or by the corporation. Only by repayment to the corporation itself can the rights of creditors or the rights of the corporation be fully protected. Secondly, if every minority stockholder could sue in his own name for his proportionate share of the money due the corporation an intolerable situation might result on account of the filing of a multiplicity of suits.

There are circumstances in which minority stockholders may institute and maintain...