West v. Certified Credit Corp.

• Decision Date: 05 March 1964
• Docket Number: No. 10132,10132
• Citation: 162 So.2d 589
• Parties: Warren C. WEST et al., Plaintiffs-Appellants, v. CERTIFIED CREDIT CORPORATION, Defendant-Appellee.
• Court: Court of Appeal of Louisiana — District of US

Page 589

162 So.2d 589

Warren C. WEST et al., Plaintiffs-Appellants, v. CERTIFIED CREDIT CORPORATION, Defendant-Appellee.

No. 10132.

Court of Appeal of Louisiana, Second Circuit.

March 5, 1964.

Rehearing Denied April 13, 1964.

Cook, Clark, Egan, Yancey & King, Shreveport, for appellant.

Booth, Lockard, Jack, Pleasant & LeSage, Shreveport, for appellee.

Before HARDY, GLADNEY and AYRES, JJ.

GLADNEY, Judge.

This suit was filed September 3, 1963, by Warren C. West, Kelley Womack, and Del Cryer, stockholders of Certified Credit Corporation of Louisiana, Inc., the defendant herein, and seeks appointment of a receiver, together with conservatory relief. An order maintaining the status quo of the company was granted. After issue was joined by answer of defendant in the nature of a general denial judgment was rendered rejecting plaintiffs' demands. From that decision this appeal has been perfected.

The primary issue presented on this appeal is whether or not the activities which have occurred in the management of the affairs of the defendant corporation under the direction of Louis J. Roussel, a majority stockholder, evidences such a determined course, scheme, or plan of corporate changes and management that the charter rights of petitioners and other owners of Class 'A' Common stock of the defendant corporation are in imminent danger of loss or destruction. The suit was brought under the provisions of LSA-R.S. 12:752. Upon hearing in the trial court plaintiffs also urged that the stock by which Roussel purports to control the corporation is invalid. But on this question in brief before this court it is stated: 'While the validity of such stock is not directly at issue in this litigation, it is, in view of Roussel's action above discussed, a vital reason for the appointment of a receiver to investigate the internal affairs of the corporation.'

During the year 1957 Certified Credit Corporation, a corporation domiciled in Columbus, Ohio, became the driving force to consolidate certain life insurance companies doing business in the northwestern portion of Louisiana. It secured the consent of several of these companies to merge into a surviving corporation to be named Certified Life Assurance Company of Louisiana, with the understanding the Ohio corporation would provide management and financial stability. The shareholders of these companies received, in exchange for their stock, shares to be issued by another corporation, Certified Credit Corporation of Louisiana, Inc. (For convenient reference, the three above-named corporations are hereinafter referred to as Certified Life, Certified of Louisiana, and Certified of Ohio). Mergers were effected by the Colonial Western Underwriters Company, Inc., and Mid-Continent Securities, Inc., who brought into Certified Life their assets and in exchange their shareholders received shares of Class 'A' Common stock of Certified of Louisiana Other smaller life insurance companies followed this procedure. Certified of Louisiana was initially organized with a capital stock of 1,000,000 shares of Class 'A' Common stock with a par value of 20 cents per share and 1,000,000 shares of Class 'B' Common stock with a par value of one cent per share. Subsequently, on October 16, 1958, the authorized number of shares of Class 'A' and Class 'B' stock were 2,000,000 each. After completion of the mergers, the three corporations had the following stock distribution: Certified Life was capitalized with 250,000 shares of Class 'A' Common stock, of which 176,920 shares thereof were transferred to Certified of Louisiana which had outstanding 1,538,227 shares of Class 'A' Common stock issued in exchange for the stock held by the shareholders of the companies merged into Certified Life, or otherwise disposed of for value received. Two million shares of Class 'B' stock had been subscribed to by Certified of Ohio at its par value of one cent per share. Certified of Louisiana had received 176,920 shares of Certified Life for the shares of Class 'A' Common stock issued by it. Certified of Ohio, by purchase or subscription, had acquired 71,965 shares of Certified Life and 1,723 shares of Certified of Louisiana Class 'A' Common stock, and 2,000,000 shares of Certified of Louisiana Class 'B' Common stock.

Certified Life became the active operating company and conducted an extensive insurance business. Certified of Louisiana was strictly a holding company, possessing the majority of the stock of Certified Life. Certified of Ohio was strictly a holding company controlling in excess of twenty corporations including Certified of Louisiana. This control of the latter corporation was made effective by the fact that each share of Class 'A' and each share of Class 'B' of the stock of Certified of Louisiana entitled its holder to one vote in the affairs of the corporation. The respective rights granted by the charter to Class 'A' and Class 'B' Common stock of Certified of Louisiana are as set forth below. ¹

The affairs of Certified Life and Certified of Louisiana progressed well in a business way, but, during the early part of 1963, Certified of Ohio was placed in bankruptcy under a Chapter X proceeding of the Federal Bankruptcy Act, and, at approximately the same time, Certified of Louisiana was placed in receivership by the Court of Common Pleas of Franklin County, Columbus, Ohio. At a bankruptcy sale on May 29, 1963, Louis J. Roussel, of New Orleans, purchased 1,723 shares of Class 'A' and 2,000,000 shares of Class 'B' Common stock of Certified of Louisiana for $301,101.00 and 71,965 shares of Certified Life for $229,899.00. It appears from the record that Roussel was induced to purchase this stock for the purpose of consolidating or merging Certified Life with one of the insurance companies controlled by him.

By reason of the purchase of this stock Roussel gained majority control of Certified of Louisiana, and through the latter's possession of 176,920 shares of the stock of Certified Life, a majority control of that company. He promptly directed that a shareholders' meeting of Certified of Louisiana be held in Shreveport on August 27, 1963. Notices for this meeting were sent out under date of August 9, 1963, and signed by S. O. Bruce as agent and attorney in fact for more than 60% Of the stock outstanding. ²

Roussel took into his possession the records of Certified of Louisiana and caused an audit to be made by John C. Walsh, an accountant. A copy of a balance sheet from this audit appears in the record. It fixes the stockholders' equity in Certified of Louisiana as of September 12, 1963, at $931,326.08. Apparently this valuation is based on a valuation of $15.00 per thousand on the life insurance issued by Certified Life. It is indicated by other evidence in the record that a proper value would be $25.00 to $30.00. Algie D. Brown, a stockholder and an attorney, gave his opinion that the assets of Certified Life were worth approximately $1,500,000.00.

At the stockholders' meeting held on August 27th, a large number of Class 'A' shareholders appeared. Without formality, Roussel took charge, named himself chairman, and proceeded, again without formality, to name some nine directors, three of whom were from holders of Class 'A' stock and the others were business associates or employees of Roussel. He advised the stockholders that the domicile of the Corporation would be changed to his office in the American National Bank Building, New Orleans. After so proceeding, he called for a discussion to consider charter changes, converting all Class 'A' and Class 'B' Common stock into a single class of stock. Roussel seemed to make it clear that such stock would be exchanged on an equal basis. There was a great deal of opposition to this proposal and the meeting was adjourned to September 6th, to be held in New Orleans. He announced, however, that a directors' meeting would be held September 6th in New Orleans prior to the time set for the shareholders' meeting.

On August 31st, without notice to the three directors representing the Class 'A' shareholders, Roussel convened a directors' meeting in New Orleans at which meeting inter alia, the directors present purported to authorize him to borrow money for the corporation and procured the adoption of resolutions summarily dismissing from office the directors and officers of Certified Life. He likewise removed the three directors of Certified of Louisiana named at the August 27th shareholders' meeting on the stated grounds they had not indicated their written acceptance of such offices. Thereafter, on the next banking day, a loan in behalf of defendant corporation for $100,000.00 was negotiated with the American National Bank of New Orleans, which Roussel described as one of his companies. Petitioners complain that there was no need for a loan of such a size forasmuch as the corporation had a current indebtedness of only a few thousand dollars and a total indebtedness of approximately $17,000.00, $14,400.00 of which was represented by a long-term loan on the real estate owned by the corporation, and contend such interest payments will impose an unnecessary burden. Roussel pledged all of the 176,920 shares of Certified Life stock owned by Certified of Louisiana as collateral for the loan, which was evidenced by a demand note.

The foregoing circumstances reflect actions of Roussel which have disturbed the Class 'A' stockholders of Certified of Louisiana. Petitioners earnestly complain that the intent and purpose of Roussel is to substantially destroy the value of their Class 'A' Common stock, that they have no voice in the affairs of the corporation, and that it would be futile to bring individual suits for the purpose of securing redress.

As evidence of this they point to this testimony of Mr. Roussel:

'Q. You do not know what the relative rights of Class A and B are? Is that your statement?

'A. I know that in case of a voluntary liquidation that the Class A...