Stone v. Massa

• Decision Date: 30 June 1966
• Citation: 218 N.E.2d 583,351 Mass. 264
• Parties: Judah M. STONE et al. v. Raimond MASSA et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 583

218 N.E.2d 583

351 Mass. 264

Judah M. STONE et al. v. Raimond MASSA et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued April 8, 1966.

Decided June 30, 1966.

John D. Dwyer, Boston, for Raimond Massa and others.

Edward H. Bennett, Jr., Boston, Joseph H. Choate, III, Boston, Mass., with him, for Edward H. Bennett, Jr., trustee; Robert K. Lamere, Boston, for Raimond, Inc., also with him.

Bernard P. Rome, Boston (Oliver T. Cook, Boston, with him), for plaintiffs.

Before WILKINS C.J., and SPALDING, WHITTEMORE, CUTTER and SPIEGEL, JJ.

WHITTEMORE, Justice.

This proceeding under G.L. c. 231A sought the determination of controversies between two groups claiming rights in business assets which until February 6, 1961, were owned by the defendant Raimond, Incorporated (Raimond, Inc.). On that date, by vote of the plaintiffs Judah M. Stone and Leonard Florence, two of three voting trustees of all the stock of Raimond, Inc., the assets were transferred to the plaintiff Raimond Silver Manufacturing Company, Inc. (Raimond Silver). The third voting trustee, the defendant Raimond Massa (Massa), did not join in the sale. The defendant Edward H. Bennett, Jr., is now a trustee of the voting trust in the place of Judah Stone, whose removal as trustee by decree of the Probate Court for Suffolk County was sustained by this court in Massa v. Stone, 346 Mass. 67, 190 N.E.2d 217. The fourth plaintiff is Dewey D. Stone, who gave financial assistance to Raimond, Inc. beginning prior to 1955. The other two defendants, Louis Massa and Joseph V. Massa, are sons of Massa and stockholders of Raimond, Inc. In Bennett v. Florence, 347 Mass. 707, 200 N.E.2d 291, and Bennett v. Superior Court, 347 Mass. 783, 199 N.E.2d 914, we held in effect that the several controversies should be resolved in the present suit.

The final decree, following confirmation of a master's report, declared the validity of the transfer of February 6, 1961. Other aspects of the decree are indicated in the course of this opinion. The defendants have appealed from the interlocutory decrees confirming the master's report and denying recommittal and from the final decree. They contend that the master's ultimate findings and conclusions cannot follow from his subsidiary findings. The master found the facts to be as stated below.

1. The sale of February 6, 1961.

In 1937 Massa, after being employed for some years as a silversmith, began, in his home, a small jewelry business. In 1940, with Louis Brown, a man with some business experience, he organized Raimond, Inc. Brown and Massa each held fifty of the one hundred shares of stock of the corporation. Until 1955 the chief business was the manufacture and sale of jewelry novelties and costume jewelry. In 1954 the corporation began to make and sell picture frames of sterling silver and other metals. Products were sold under the trade name Raimond and were well received. Sales were not large. Operations were generally unprofitable. On two occasions prior to 1955 Dewey Stone, a friend of Brown, had lent a total of $8,000 for brief periods. The loans were without interest and were repaid.

In the spring of 1955, at the solicitation of Brown, and with the consent of Massa, Dewey Stone agreed to lend Raimond, Inc. $25,000 provided that his nephew by marriage, Judah Stone, be employed to render administrative and legal services and be given one third of the stock and that all the stock be placed in a voting trust with Massa, Brown, and Judah Stone as trustees under which all decisions would be by a majority vote including the vote of Judah Stone. This proposal was carried out. By the spring of 1956 the corporation had shown no progress and Dewey Stone suggested to his young friend Leonard Florence the possibility of his employment by Raimond, Inc. After talking with Massa, Brown, and Judah Stone, Florence went to work for Raimond, Inc. in June, 1956, and was given twenty-five per cent of the shares. ¹ A new voting trust was set up with Massa, Judah Stone and Florence as trustees. The term, ten years, was to end June 18, 1966. The provision for voting was the same as in the earlier trust. Florence became vice-president, assistant treasurer, and general manager. The directors then were Massa, Judah Stone, and Florence.

Dewey Stone then brought new money into the business. Sales and production increased. Sales were made by Florence ('(a)ble and tireless and an excellent salesman') and by commission salesmen. Florence improved merchandising methods and hired a college friend to work on production. The three Massas continued to work on production. Brown died on June 1, 1957.

Losses continued and were to amount to $38,000 by July 31, 1957. In the first week of April, 1957, the corporation needed money for its weekly payroll for its thirteen employees. Raimond, Inc. then owed Dewey Stone $35,000, and owed $59,339.14 to Judah Stone for funds borrowed by him for the corporation on notes guaranteed by Dewey Stone.

A meeting at Dewey Stone's office on April 9 was attended by the Stones, the Massas, Florence, and Mr. Authur T. Wasserman, Dewey Stone's attorney in his dealings with the corporation. Although the directors had not engaged Mr. Wasserman, and Massa, the president, had not been consulted, Mr. Wasserman introduced himself as, and acted as, the attorney for the corporation. As the sole source of funds for a then insolvent enterprise, Dewey Stone regarded himself as entitled to direct its affairs. He was greatly irritated with the Massas because of salary increases which Joseph and Louis Massa had requested and received since June, 1956. Dewey Stone told the Massas they were fired. He also said, contrary to the fact, that he had taken over the Brown stock and controlled seventy per cent of all the stock and that he was not going to divide his money with strangers. He demanded that the Massas either turn over their stock to Florence and Judah Stone or pay off the loans, at a $10,000 discount for a net of $80,000. As everyone present knew, the Massas had no significant funds. During the meeting Judah Stone and Florence 'said practically nothing, acquiescing in all the statements of Dewey Stone.' The Massas, Judah Stone, and Florence returned to the plant and, at Florence's orders, a locksmith changed all locks. From this point on the Massas were excluded from the business.

The episode on April 9, 1957, illustrated Dewey Stone's view that as he was the only one with funds at risk in the business he should control 'fundamental management decisions and should determine how the company's funds should be used.' He believed that the Massa investment had long since been lost and that Massa and his sons were entitled to only such benefits as Dewey Stone saw fit to accord them. By then he had concluded that he wanted them to have no further benefits. Florence and Judah Stone 'acquiesced in Dewey Stone's view as to the control that he regarded himself as entitled to exercise.'

Net profits from all activities for the fiscal year ending July 31, 1959, were $15,560. Florence was working indefatigably six and seven days a week in and out of the plant. More than half the sales were directly attributable to him. He had expanded the company's range of merchandise by buying items for resale. These jobbing sales were about half the company's business. The need for working capital increased. Dewey Stone remained the source of funds and direct and indirect assistance from him then totaled $177,693.36.

By the end of February, 1960, there was reason to believe the corporation could survive at least so long as Florence contributed his talents and Dewey Stone furnished financial backing. There was reason to anticipate that there might soon be profits which Dewey Stone believed would be 'attributable solely to his money and * * * Florence's talents, and he did not believe the Massas should enjoy their fruits.' Hence in his view either Dewey Stone or the Massas would have to get out.

In February, 1960, Dewey Stone told Judah Stone and Florence of his desire to withdraw his backing if the Massas were to retain an interest. The two executives made some inquiries of others about possible refinancing, but elicited no interest. 'Dewey Stone concluded that he was now inextricably involved with the corporation and that he could exclude the Massas only by acquiring all the assets as a going enterprise which could then be owned by himself alone.'

Dewey Stone, embarking upon his plan to acquire the business, told Judah Stone and Florence of his decision. 'Without attempting to negotiate or remonstrate and knowing that they would continue as chief executives of the business in Dewey Stone's hands, the latter two acquiesced in Dewey Stone's plan.' After conferring with Mr. Wasserman, and without consulting any other counsel or obtaining any outside appraisal of the business, they made arrangements for a stockholders' meeting on April 7, 1960, at which they intended to accept a proposal from Dewey Stone to acquire the assets for a sum equal to the total liabilities. 'It was plain however that if they refused Dewey Stone would not have forced a liquidation, since he would have suffered great financial loss.'

Massa on April 6, 1960, brought a suit in the Superior Court to enjoin Judah Stone's voting the stock in the trust. As an alternative the suit sought removal of Judah Stone as trustee. A preliminary injunction issued and the meeting was not held.

On April 16, 1960, Dewey Stone delivered a letter of that date to Raimond, Inc., attention of Florence, in which he stated that he was unwilling to continue to finance the corporation and was 'insistent that the company, at its option,' either forthwith pay amounts owing to him and to Judah Stone and obtain the release of his guaranties and of the pledges of his property or have the corporation transfer to him or a new corporation all its assets for a sum equal to their book value as...