Spiegel v. Beacon Participations, Inc.

• Decision Date: 14 June 1937
• Citation: 8 N.E.2d 895,297 Mass. 398
• Parties: SPIEGEL v. BEACON PARTICIPATIONS, Inc., et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

297 Mass. 398

8 N.E.2d 895

SPIEGEL

v.BEACON PARTICIPATIONS, Inc., et al.

Supreme Judicial Court of Massachusetts, Suffolk.

April 1, 1937.

As Corrected June 14, 1937.

Suit in equity by Edward Spiegel against Beacon Participations, Incorporated, and others. From sundry orders and decrees, the defendants appeal, and from an interlocutory decree, the plaintiff appeals.

Reversed, and case to stand for further proceedings.Appeals from Superior Court, Suffolk County; J. J. Burns, Whiting, and Gray, Judges.

R. T. Bushnell, J. Lewiton, and G. A. Murphy, all of Boston, for plaintiff.

S. C. Rand and P. H. Rhinelander, both of Boston, for defendants Lyman and Mumford.

S. Hoar, R. R. Duncan, and L. Wheeler, Jr., all of Boston, for defendant Adams.

A. L. Brown and G. L. Mayberry, both of Boston, for defendants Gow, Sturges, and Poole.

D. Stoneman, of Boston, for defendant Jopp.

H. S. Davis, of Boston, for defendant Hart.

E. V. Grabill, of Boston, for defendant Lawler.

RUGG, Chief Justice.

This suit in equity was filed on September 26, 1932. The plaintiff, in 1928, purchased and still owns twenty-five shares of class A stock of Beacon Participations, Inc. (hereafter called the defendant), a corporation organized on May 11, 1928, under the laws of this Commonwealth. The defendant was organized by the active directors of the Beacon Trust Company (hereafter called the bank) to buy, sell and deal generally in stocks, bonds and securities. It is charged in the bill that the defendant has claims against its present and former directors and that the present directors, by reason of personal interest and being nominees of guilty directors, are not proper persons to be intrusted with the prosecution of this proceeding; that it is brought by the plaintiff as a minority stockholder in behalf of the defendant and of the plaintiff and other stockholders who may choose to join. There is no intervening petition by other stockholders before this court. The plaintiff prosecutes its suit alone. The allegations of the bill fall into four classes: (1) The defendant directors are liable to the defendant because, on June 4, 1928, they caused it to buy from the bank, for the price of its face value of $520,000, a note of Beacon Building Trust, Inc. (an affiliate of the bank), payable to the bank and indorsed by it without recourse. The defendant was an affiliate of the bank, and all of its directors with a single exception were directors of the bank. At that time, the note was of little or no value, as the individual defendants then knew, and its maker was not financially responsible. The purchase was made to further the interests of the bank rather then those of the defendant; and the individual defendants, in disregard of their obligations to the defendant, caused it to buy the note. This was a wrongful, improper, unsound and imprudent use of the funds of the defendant, and the investment was allowed to continue until it became utterly worthless. (2) The individual defendants caused losses to the defendant by illegal and improper use of its funds in a joint trading account with Jordan Lyman Co., Inc., a Massachusetts corporation dealing in securities, of which the defendants Jordan and Lyman were officers and directors, without requiring said corporation in the first instance to furnish its proportionate share of the necessary capital or adequate security therefor, and by culpable neglect in failing to demand security when a threatened loss became apparent. (3) The individual defendants illegally declared and caused to be paid dividends out of the capital of the corporate defendant at times when there were no net earnings or surplus out of which such dividends could rightly be paid. (4) The individual defendants caused the corporate defendant to purchase in the open market shares of its own class A stock, and to pay for the same out of its treasury large sums of money, at excessive prices, at a time when its capital was impaired.

The defendant filed a plea in bar denying that the present directors were nominees of the former directors, or that the members of the new board of directors had neglected their duties, and asserting that as a board they had not had adequate time before his suit was brought to investigate the charges made by the plaintiff. The individual defendants filed answers in which was a denial of any impropriety or illegality of action on their part. The case then was heard upon the plea in bar and upon the merits before a judge of the Superior Court. That hearing was strictly limited to the plea in bar and to the question of liability, and was not concerned with the issue of damages. All the evidence presented at that hearing is before this court as a part of the record on appeal. The trial judge at the conclusion of the hearing filed findings of facts, which included certain rulings of law. [It was incorrectly entitled ‘Memorandum of Findings.’ Commonwealth v. Marrelli, 266 Mass. 113, 115, 165 N.E. 2, and cases cited.] The trial judge overruled the plea in bar and found various individual defendants liable on each of the four classes of wrongs specified in the bill. The case then was referred to a master ‘to hear the parties and their evidence on the question of damages, and to report to the Court his findings of fact not inconsistent with the findings in said Memorandum [meaning the findings of fact and rulings of law already described and filed by the trial judge] together with such evidence as may be necessary properly to present for determination the correctness of any ruling of law requested by any party.’ This limitation upon the powers of the master, taken in connection with the findings made by the trial judge, raised serious difficulties as to the admissibility and effect of testimony before the master. After the hearing had proceeded for several days, the master made an interlocutory report setting forth those difficulties. There was a hearing on that report before the trial judge. Counsel for individual defendants pointed out to him that the trial before him ‘was limited to the issue of liability,’ as stated twice during the trial and explicitly embodied in his findings, and argued the injustice to them of being finally bound by findings made by him which related to damages. The trial judge felt that there were no difficulties and ruled that the decree appointing the master was not ambiguous, and referred to ‘all the findings' set forth in his so called ‘Memorandum.’ The hearings then proceeded before the master under that ruling. The master's report was filed on August 16, 1934. There were numerous objections by both the plaintiff and the defendants, and the defendants filed motions to recommit to the master. At the hearing on these matters, the trial judge called for a transcript of the testimony before the master, which appears to have been taken stenographically and typed, and it was presented to him by the defendants, although there had been no order to the master to report the evidence in full. The trial judge deemed that it was necessary, in passing upon the objections and motions, to read and consider all this evidence. It is a part of the printed record before us. On September 15, 1934, the resignation of the trial judge from the Superior Court took effect, but on that day he filed ‘Findings and Rulings and Order for Decree,’ whereby further findings of fact were made and orders made for the entry of decrees overruling the defendants' motions to recommit and all exceptions to the master's report, and for the entry of a final decree charging the individual defendants with the payment to the defendant of large sums of money. The record consists of the pleadings, except the plea in bar which is not printed and from the overruling of which there is not appeal, the testimony before the trial judge at the hearing, which ‘was limited to the issue of liability,’ the findings of fact and rulings of law resulting from that hearing made by the trial judge and filed on July 6, 1933, supplemented by amended further findings of fact filed on September 15, 1934, as a part of the order for final decree, the decree appointing the master and the interpretation of that decree by the trial judge, the master's report, transcript of the evidence before the master, various interlocutory orders of the trial judge and his order for final decree, the final decree and appeals by the individual defendants from adverse decrees, as well as some other subsidiary and incidental proceedings.

There was no order to the master to report in full the evidence before him and he rightly did not attempt to report it. Limitations set forth in the decree appointing a master commonly are binding upon him and restrict his powers. Cook v. Scheffreen, 215 Mass. 444, 448, 102 N.E. 715;Bradley v. Borden, 223 Mass. 575, 586, 112 N.E. 416;Smith v. Lloyd, 224 Mass. 173, 112 N.E. 615. But the trial judge filed a certificate to the effect that in ‘passing upon the objections and motions' accompanying the master's report it was necessary for him ‘to read all the testimony presented before the master.’ Since the trial judge deemed it necessary to read a transcript of all the evidence heard by the master and to identify it by his certificate, and since he subsequently filed further findings and rulings, the plaintiff cannot complain that such evidence has been printed as a part of this record. So far as necessary, it will be considered in deciding the issues here depending. A motion by the plaintiff to expunge this evidence from the record was presented to this court some days previous to the arguments at the bar and was denied.

Certain general considerations have been raised by the defendants, which must be decided at the outset. This is a suit in equity. It comes before us on appeal from a final decree with findings of fact made by the trial judge and a full report of the evidence, most of which was heard orally. In such circumstances, where...