Selama-Dindings Plantations, Ltd. v. Durham, 4730.

• Decision Date: 20 March 1963
• Docket Number: No. 4730.,4730.
• Citation: 216 F. Supp. 104
• Parties: SELAMA-DINDINGS PLANTATIONS, LTD., Plaintiff, v. Frank W. DURHAM et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

216 F. Supp. 104

SELAMA-DINDINGS PLANTATIONS, LTD., Plaintiff, v.Frank W. DURHAM et al., Defendants.

No. 4730.

United States District Court S. D. Ohio, W. D.

March 20, 1963.

COPYRIGHT MATERIAL OMITTED

S. Arthur Spiegel and James Q. Doran, of Cohen, Baron, Druffel & Hogan, Cincinnati, Ohio, for plaintiffs.

Robert P. Goldman and Reuven J. Katz, of Paxton & Seasongood, Cincinnati, Ohio, for defendants.

WEINMAN, Chief Judge.

This case, a shareholders' derivative action, has been tried to the Court without a jury.Before stating its Findings of Fact and Conclusions of Law, the Court deems it advisable to briefly review the history of the case.

On January 4, 1961, plaintiff, Selama-Dindings Plantations, Ltd.(sometimes hereinafter referred to as Selama-Dindings), on behalf of itself and for the benefit of and on behalf of The Cincinnati Union Stock Yard Company, a corporation (sometimes hereinafter referred to as defendant corporation), and all the shareholders of The Cincinnati Union Stock Yard Company who may be similarly situated, filed a Complaint against seven individual defendants, joining, as required by law, The Cincinnati Union Stock Card Company.In its first cause of action plaintiff alleges that the individual defendants, directors of the defendant corporation, caused The Cincinnati Union Stock Yard Company to sell certain real estate for $110,000.00 when plaintiff, through its representatives, had offered $115,000.00 for the property.For its second cause of action plaintiff alleges that the defendant directors caused The Cincinnati Union Stock Yard Company to expend certain funds, about $15,000.00, for improper purposes, to-wit: to furnish to shareholders inflammatory and libelous material defaming the character and personality of Charles E. King, Martin W. Glotzer and their associates.These funds, plaintiff alleges, were used to investigate certain transactions involving plaintiff, Charles E. King, Martin W. Glotzer and their associates, unrelated to defendantThe Cincinnati Union Stock Yard Company, in order to hinder plaintiff from purchasing shares of defendant corporation and to aid the defendant directors in procuring the proxies of shareholders of defendant corporation.Plaintiff further alleges that the expenses so incurred were for the benefit of the defendant directors so that they might perpetuate themselves in power by controlling a majority of the Board of Directors and thereby continue the employment of certain defendants in the management of defendant corporation.

Plaintiff, in its prayer, seeks judgment on behalf of The Cincinnati Union Stock Yard Company and all of its shareholders against the defendant directors in the sum of $5,000.00 upon the first cause of action and judgment in the sum of $15,000.00 upon the second cause of action.Plaintiff further prays that the damages which defendant corporation may have sustained by reason of the matters and things heretofore set forth, in addition to those heretofore prayed for, may be ascertained and determined and that all the defendant directors be directed to pay such damages to defendantThe Cincinnati Union Stock Yard Company to the extent that they gained by such damage or participated in causing such damage.Plaintiff further prays that it be awarded a reasonable allowance for attorneys' fees, expenses and costs in the prosecution of this action.

On January 25, 1961, defendants filed their Answer and Counterclaim which was superceded, on November 1, 1961, by an Amended Answer and Counterclaim.The defenses to the Complaint are, stated briefly:

1.That plaintiff is a corporation transacting business in the State of Ohio but has failed to file with the Secretary of the State the necessary documents and to pay the fees in order to qualify for the purpose of doing business in the State of Ohio and therefore, according to the provisions of the Revised Code of Ohio applicable to foreign corporations doing business in the State of Ohio, is not qualified to institute or maintain this action.

2.That plaintiff failed to make a demand upon defendant corporation or its Board of Directors to bring the action to recover the alleged wrongful payments from the defendant directors and further that plaintiff failed to make demand on the directors to call a meeting to submit the claims of plaintiff to the shareholders of defendant corporation and plaintiff could have submitted and did not submit the same for their action to the shareholders before or at the approaching annual meeting.

3.That the action is not brought on the behalf of or for the benefit of The Cincinnati Union Stock Yard Company and is not brought by plaintiff in good faith but as a part of the plan of plaintiff in conducting its campaign to purchase the outstanding shares of defendant corporation.

4.That Charles E. King did not submit a bona fide offer to the Board of Directors on behalf of plaintiff to purchase the real estate for $115,000.00.

5.That at all times the individual defendants administered the affairs of the corporate defendant in a proper, careful, useful and prudent manner.

As a Counterclaim against plaintiff, the defendants allege that plaintiff has conducted its campaign to obtain control by "impermissible and illegal methods and has caused the company to incur exceptional expenses as a result thereof, for which the Company seeks an injunction and punitive damages."

On January 16, 1961, defendants filed a motion for summary judgment on the same grounds as alleged in the Answer as its first defense, i. e., that the plaintiff corporation has been and is doing business in the State of Ohio and it has failed to qualify for doing business in the State of Ohio, and according to Ohio Revised Code Section 1703.29(A) may not maintain an action in this Court.On July 26, 1961, this Court denied defendants' motion for summary judgment for the reason that material questions of fact existed and stated that the facts concerning plaintiff's capacity to bring this action must be developed at the trial or at a special hearing to determine these facts.

On January 19, 1962, plaintiff filed its Reply to the Counterclaim in which plaintiff denies that the amount in controversy between it and defendants is in excess of $10,000.00, exclusive of interest and costs.Plaintiff further denies that the campaign to obtain control of The Cincinnati Union Stock Yard Company has been and is being conducted by impermissible and illegal methods, or has injured defendant corporation and plaintiff further denies that it has committed any wrongful acts which have caused any damage to defendant corporation.

On December 20, 1962, the Court, having been advised that in the ordinary course of events a shareholders' meeting of The Cincinnati Union Stock Yard Company would take place on March 26, 1963, entered an Order prohibiting any meeting, whether regular or special, of the shareholders of defendant corporation until this case was decided or until further Order of the Court.

The trial of this case commenced before the Court on April 30, 1962.The Court having considered the pleadings and having heard the evidence and having considered the behavior of the witnesses on the stand, their manner of testifying and the reasonableness and probability of their testimony hereby makes the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

1.Plaintiff, Selama-Dindings, is a Hawaiian Corporation whose principal place of business is in Honolulu, Hawaii; maintaining the office of its Executive Committee at Chicago, Illinois.Plaintiff is registered as a closed-end non-diversified investment company under the Federal Investment Company Act of 1940.

Charles E. King, Martin W. Glotzer and Richard E. Turner are members of the Board of Directors and of the Executive Committee of Selama-Dindings.Edward Slovick is an attorney who has, at various times, though not in this law suit, represented Selama-Dindings.

As hereinafter used, "plaintiff's representatives" may include any number of the aforementioned persons and "the minority directors" denotes plaintiff's representatives who were, at the time referred to, members of the Board of Directors of defendant corporation.The minority directors, and the dates of the shareholders' meetings at which each was elected a director of defendant corporation are: Charles E. King and Martin W. Glotzer, March 22, 1960; Charles E. King, Martin W. Glotzer and Richard E. Turner, March 28, 1961; and Charles E. King, Martin W. Glotzer, Richard E. Turner and Edward Slovick, March 27, 1962.However, the election of Edward Slovick is contested by the defendant directors.

2.At the date of filing the Complaint, each of the individual defendants, Frank W. Durham, William A. Mitchell, Otto V. Moesch, Murray Seasongood, William B. Stone, W. Craig Weaver, Emil E. Work, was a citizen of the State of Ohio and a member of the Board of Directors of defendant corporation.Murray Seasongood is also the senior member of the law firm of Paxton and Seasongood, which firm represents defendant corporation and each of the individual directors in this action.However, Frank W. Durham and W. Craig Weaver are no longer directors of defendant corporation.

3.The principal business of defendant corporation is and always has been the conducting of a public stock yard located in Cincinnati, Ohio.It owns, in addition to stock yard facilities, an office building, the stock of a hotel corporation and other real estate not used or useful for stock yard purposes.

4.Plaintiff, on May 18, 1962, in open Court moved to dismiss defendantsFrank W. Durham, who is Vice-President and Secretary of defendant corporation, and Otto V. Moesch, who is Chairman of the Board of Directors and President of defendant corporation, for the reason that the services of these men are of vital importance to defendant corporation and therefore, they should not be required to expend further time in the...