Trusteed Funds v. Dacey, 4218.

• Decision Date: 07 March 1947
• Docket Number: No. 4218.,4218.
• Citation: 160 F.2d 413
• Parties: TRUSTEED FUNDS, Inc., v. DACEY.
• Court: U.S. Court of Appeals — First Circuit

160 F.2d 413 (1947)

TRUSTEED FUNDS, Inc., v. DACEY.

No. 4218.

Circuit Court of Appeals, First Circuit.

March 7, 1947.

COPYRIGHT MATERIAL OMITTED

Thomas H. Ray, of Boston, Mass. (William Shaw McCallum, of Boston, Mass., on the brief), for appellant.

Richard Maguire, of Boston, Mass. (Maguire & Roche, of Boston, Mass., on the brief), for appellee.

Before MAGRUDER, MAHONEY and WOODBURY, Circuit Judges.

MAGRUDER, Circuit Judge.

This is a somewhat difficult veteran's reemployment case, brought under § 8 of the Selective Training and Service Act of 1940, as amended, 54 Stat. 890, 56 Stat. 724, 58 Stat. 798, 50 U.S.C.A.Appendix, § 308. The reemployment benefits of this section were, by § 7 of the Service Extension Act of 1941, 55 Stat. 627, 50 U.S.C.A. Appendix, § 357, extended to persons who, subsequent to May 1, 1940, entered upon the active military or naval service in the land or naval forces of the United States, to the same extent as in the case of persons inducted under the Selective Training and Service Act. Relevant portions of § 8, as amended, are set out in the footnote.¹

Appellant Trusteed Funds, Inc., is a Massachusetts corporation organized in 1938. Its business is sponsoring certain trust plans for the establishment by investors or "founders" of individual trusts under a form of indenture of trust known as "Commonwealth Fund Indenture of Trust" wherein the National Rockland Bank of Boston is designated as trustee. A firm of investment counselors directs the trustee in the investment of funds. Two of the trust plans provide for monthly payments of $10 or multiples thereof spread over a 10-year period. From the periodic payments so made, Trusteed Funds, Inc., receives a commission of 7½%, called a "founding fee", which is paid monthly according to a fixed schedule. There are also plans calling for single lump sum payments of $500 or more, under which Trusteed Funds, Inc., receives a founding fee of 7½% deducted from the lump sum payments when made. The founding fees are used to pay all expenses of appellant, including selling expenses.

The company was organized by D. A. Griffith and his associates, Norman F. Dacey (appellee herein), and H. B. Paquet. Griffith became a director, and president of the company, Dacey became a director and one of the vice presidents, and Paquet also became a director and vice president.

On October 4, 1938, a five-year written contract of employment was executed by appellant and Dacey, under which Dacey was to serve as publicity manager "to manage and to supervise the publicity activities of the Company, and to perform such other duties and render such other services as may be required of him in the best interests of the Company, subject to the general direction and supervision of the General Manager of the Company and under the control and to the satisfaction of the Board of Directors of the Company." The company was given the option to extend the agreement for a further period of five years from October 4, 1943, upon the same terms and conditions, upon giving notice in writing of its intention so to do to the said Dacey on or before July 1, 1943. No such notice was ever given. Under the contract, Dacey was compensated solely on a commission basis. He received 7% of all the founding fee income of the company. By certain amendments executed on March 15, 1941, and May 12, 1942, he also received 50% of the founding fees derived from sales of plans effected by his personal efforts.

Similar five-year contracts were made by Trusteed Funds, Inc., with Griffith, who was employed as "General Manager", and with Paquet, who was employed, we infer, as "Sales Manager". Griffith received 11% of the total founding fee income of the company and Paquet 7%, the same as Dacey. This 25% of the aggregate founding fee income of the company was called the "X Account", or "Special Account", and was split between Griffith, Dacey and Paquet in the proportions of 44%, 28%, and 28%, respectively, another way of stating that Griffith received 11% of the total founding fee income of the company and Dacey and Paquet 7% each. Griffith and Paquet also each received 50% of the founding fees from plans sold by them personally.

As things worked out, Dacey's duties with respect to publicity were apparently in large part curtailed or eliminated by the Investment Company Act of 1940, 15 U.S. C.A. § 80a — 1 et seq., Trusteed Funds, Inc., having registered with the Securities and Exchange Commission under that Act in March, 1941. Under the May 12, 1942, amendment to his contract, it was agreed that Dacey would continue to perform such services as had hitherto been performed by him, and in addition that he would undertake by direct contact and through his own efforts to sell the various trust plans offered by the company. Most of Dacey's time, according to his testimony, was devoted to sales work, recruiting salesmen and training them, and assisting them in the field, also in assisting on the executive side of the business.

On June 25, 1942, at which time his contract had an unexpired period of about one year and three months, Dacey accepted a commission in the army and left for active duty. At this time he submitted to the board of directors a request for a modification and extension of his contract. The board declined this request, which was subsequently withdrawn. In December, 1943, Dacey's term of office as director expired, and a successor was elected. Also, one Frank J. Tibert was elected in his place as a vice president.

Upon his return from overseas in June, 1945, though he was not yet released from active duty, Dacey consulted Griffith and other officers of the company with reference to resumption of employment on his return to civilian life. Griffith offered him a resident vice-presidency at Providence, Rhode Island, or New York, with the responsibility of building up and heading a regional sales organization. Dacey rejected these offers, and insisted upon being restored to his old job. There was testimony to the effect that he also insisted upon resuming his offices as director of the corporation and vice president, which Griffith said was impossible. At one point in Dacey's cross-examination he flatly stated that he had told Griffith that he would "accept reemployment under no other conditions". Considerable heat was engendered in the negotiations at this time, but nothing was worked out.

Immediately upon his discharge from active duty, on January 28, 1946, Dacey wrote to the company formally requesting reemployment. This letter was not introduced in evidence and we do not know its exact terms. Under date of January 31, 1946, counsel for the company wrote to Dacey as follows:

"The second paragraph of this letter of January 29, in which you request reinstatement, is incorrect, in that I am informed Trusteed Funds offered you — on your return from the service — alternate employment, inasmuch as the position held by you as publicity manager had been virtually abolished by action of the SEC in limiting advertising of securities. As you know, when Commonwealth Fund was created in 1938, it was not registered with the SEC and consequently was not under the advertising ban. However, on qualifying with the SEC, Trusteed Funds became subject to its laws, rules and regulations, one of which — that in regard to advertising — made necessary the abolishment of the position of publicity manager. My object in writing you this is to avoid any possible misunderstanding.

You will further be informed that since you left for service no one else was or has been employed by Trusteed Funds as publicity manager."

On February 1, 1946, counsel for Dacey wrote to the company requesting that it clarify its position as to Dacey's reemployment. "He is not interested in the salesman's position you offer but only in being reinstated in the position he occupied prior to going into the service." What reply, if any, was made to this letter does not appear.

At the time of Dacey's return, Tibert, under contract of employment as assistant sales manager, was then the third executive participating in the "X Account" in place of Dacey. It appears that Griffith was receiving 40% of X Account, Paquet 33%, and Tibert 27%. In other words, Griffith was receiving an overriding commission of 10% on all the founding fee income of the company, Paquet 8.25%, and Tibert 6.75%. The company had prospered in Dacey's absence so that, with much increased earnings, these commissions, on a percentage basis, netted the recipients substantially larger incomes than was the case when Dacey left to go into the service.

On February 19, 1946, Dacey filed his complaint in the court below. The complaint sought a declaratory judgment that the contract between the parties was suspended by the war and by reason of the plaintiff's having entered the military service, with the result that the contract had one year and three months to run from January 29, 1946, and that the company had broken the contract by its refusal to reemploy the plaintiff in his former position.² By subsequent amendment to the complaint, which the court allowed, Dacey also sought reinstatement to his former position on the basis of his rights under § 8 of the Selective Training and Service Act.

The district court ruled (66 F.Supp. 321) that Dacey had no right to resumption of employment under the contract; that in leaving voluntarily to enter the service, he had surrendered his contract rights; that so far as the contract itself was concerned, "it has terminated either through the action of the parties or by its own time limitation." The correctness of this ruling was not questioned before us.

With respect to the claim under § 8 of the Selective Training and Service Act, the court found that Dacey had left his position to enter the military service, that he had seasonably made application for his old position, that he had the certificate of service and training with the armed...