Smith v. Chase & Baker Piano Mfg. Co.

• Decision Date: 23 July 1912
• Citation: 197 F. 466
• Court: U.S. District Court — Eastern District of Michigan
• Parties: SMITH v. CHASE & BAKER PIANO MFG. CO. et al.

197 F. 466

SMITH v. CHASE & BAKER PIANO MFG. CO. et al.

United States District Court, E.D. Michigan, Southern Division.

July 23, 1912

Fred A Baker, of Detroit, Mich., for complainant.

F. H and G. L. Canfield, of Detroit, Mich., for defendants.

SESSIONS District Judge.

This case has been heard once before on demurrer which was sustained. Thereupon complainant filed the present amended bill, in which is incorporated verbatim the whole of the original bill with some additions. The prayer for relief is unchanged.

Briefly stated, the allegations of the original and amended bills are as follows:

Complainant is a citizen and resident of the state of Michigan. The defendants are citizens and residents of the state of New York. The Chase & Baker Piano Manufacturing Company was organized as a corporation on the 8th day of February, 1910 and acquired and owns a factory located in the village of Holly, in this state, where it manufactured pianos during the years 1910 and 1911. Its capital stock consists of 2,500 shares of the par value of $100 of which the Chase & Baker Company owns and holds 2,200, the complainant 250, the defendant Jacob Heyl 47, and the defendants Erik Heyl, Paul Henrich, and William F. Bayer one each. The Chase & Baker Company is a corporation whose capital stock is largely owned by the individual defendants; complainant having no interest therein. Complainant and the defendants Jacob Heyl and William F. Bayer are the directors of the Chase & Baker Piano Manufacturing Company. Complainant is its vice president and factory manager, and purchases all materials and supplies, hires the employes at the factory, pays the bills out of moneys sent to him from New York, and receives a salary of $5,000 per year. During the years 1910 and 1911 the individual defendants, having control of both corporations, sold and turned over to the Chase & Baker Company all of the pianos made by the Chase & Baker Piano Manufacturing Company at prices fixed by themselves which were less than the cost of manufacture, thereby causing considerable loss to the manufacturing company, nearly if not quite all of which was attributable to the fact that the purchasing company did not take a sufficient number of pianos to keep the manufacturing company running to its full capacity. In July, 1911, the board of directors of the Chase & Baker Company, acting for that company, submitted to complainant, as manager of the Chase & Baker Piano Manufacturing Company, a schedule of prices which the former company proposed to pay for pianos manufactured by the latter company during that year. Complainant refused to consent to such prices, and objected to the continuance of the contract then existing between the two companies. Thereupon the defendant Jacob Heyl, as president of the Chase & Baker Piano Manufacturing Company, notified the complainant by letter that, in view of his 'objection to the proposals of the Chase & Baker Company and the schedules of prices submitted by them * * * which in all probability will involve a complete rearrangement of the trade relations existing between the two companies,' it would be necessary to have a meeting of the board of directors of the manufacturing company to vote upon those matters and that such meeting had been called for Monday, July 31st. Complainant did not attend the meeting of the directors, and does not know what action was taken.

The amended bill further alleges that the action of the individual defendants as directors and officers of the Chase & Baker Piano Manufacturing Company in selling to the Chase & Baker Company all of its product 'was in pursuance of a contract craftily, corruptly, and fraudulently entered into between the two corporations, by which the Chase & Baker Company not only purchased at its own prices all the pianos manufactured by the Chase & Baker Piano Manufacturing Company, but also controlled the number of pianos to be manufactured and the number to be so sold; that the Chase & Baker Company was in bad faith and covin permitted to control both the output and the prices; that, if 2,200 pianos had been made and sold in each year, there would have been no actual loss even at the low prices so fixed'; that this suit is properly brought by complainant to protect his own interests, and is not a proper one to be brought by the Chase & Baker Piano Manufacturing Company because the individual defendants who control both corporations have a larger interest in the Chase & Baker Company than in the other, and are the persons who have been guilty of the fraudulent misconduct and mismanagement of which complaint is made and have assumed an attitude hostile to the complainant, and also assert and claim that the manufacturing company is subsidiary and subject to the control and directions of the Chase & Baker Company, regardless of the rights of complainant as a minority stockholder; that the pianos manufactured under the management of complainant were of a good quality, and as perfect as could be made for the prices received; that the failure of the Chase & Baker Company to order and take the capacity output of the Holly factory was owing to the inexperience, incompetency, and mismanagement of the individual defendants and the sales agents, and not to the poor quality of the pianos as claimed by defendants; that the complainant did not consent to the contract between the two corporations as claimed by defendants; and that complainant has not received a financial statement of the affairs of the Chase & Baker Piano Manufacturing Company for the year 1911.

The prayer of the original and amended bills is: (1) 'That the action of the board of directors of the Chase & Baker Piano Manufacturing Company in turning over to the Chase &amp Baker Company all of the pianos manufactured at the factory and plant in Holly at prices less than the cost of production and a fair profit may be declared illegal and a violation of the rights of the Chase & Baker Piano Manufacturing Company and of your orator as a minority stockholder therein'; (2) that the defendants may be temporarily and perpetually enjoined from selling pianos to the Chase & Baker Company, unless the selling price and the contract to manufacture and sell is unanimously approved by all the stockholders of the manufacturing company; (3) that an accounting may be had concerning the pianos sold during the years 1910 and 1911; (4) that the amount found due to complainant on such an accounting may be declared an equitable lien on the real and personal...