Wilkes v. Springside Nursing Home, Inc.
| Decision Date | 20 August 1976 |
| Citation | 353 N.E.2d 657,370 Mass. 842 |
| Parties | Stanley J. WILKES v. SPRINGSIDE NURSING HOME, INC., et al. 1 |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
David J. Martel, Springfield (James F. Egan, Springfield, with him) for plaintiff.
Stephen B. Hibbard, Pittsfield, for the First Agricultural Nat. Bank of Berkshire and another, executors.
William W. Simmons, Pittsfield, for Springside Nursing Home, Inc., and others.
Before HENNESSEY, C.J., and REARDON, QUIRICO, BRAUCHER and KAPLAN, JJ.
On August 5, 1971, the plaintiff (Wilkes) filed a bill in equity for declaratory judgment in the Probate Court for Berkshire County, 2 naming as defendants T. Edward Quinn (Quinn), 3 Leon L. Riche (Riche), the First Agricultural National Bank of Berkshire County and Frank Sutherland MacShane as executors under the will of Lawrence R. Connor (Connor) and the Springside Nursing Home, Inc. (Springside or the corporation). Wilkes alleged that he, Quinn, Riche and Dr. Hubert A. Pipkin (Pipkin) 4 entered into a partnership agreement in 1951, prior to the incorporation of Springside, which agreement was breached in 1967 when Wilkes's salary was terminated and he was voted out as an officer and director of the corporation. Wilkes sought, among other forms of relief, damages in the amount of the salary he would have received had he continued as a director and officer of Springside subsequent to March, 1967.
A judge of the Probate Court referred the suit to a master, who, after a lengthy hearing, issued his final report in late 1973. Wilkes's objections to the master's report were overruled after a hearing, and the master's report was confirmed in late 1974. A judgment was entered dismissing Wilkes's action on the merits. We granted direct appellate review. Mass.R.A.P. 11, 365 Mass. --- (1974). On appeal, Wilkes argued in the alternative that (1) he should recover damages for breach of the alleged partnership agreement; and (2) he should recover damages because the defendants, as majority stockholders in Springside, breached their fiduciary duty to him as a minority stockholder by their action in February and March, 1967.
We conclude that the master's findings were warranted by the evidence and that his report was properly confirmed. However, we reverse so much of the judgment as dismisses Wilkes's complaint and order the entry of a judgment substantially granting the relief sought by Wilkes under the second alternative set forth above. 5
A summary of the pertinent facts as found by the master is set out in the following pages. It will be seen that, although the issue whether there was a breach of the fiduciary duty owed to Wilkes by the majority stockholders in Springside was not considered by the master, the master's report and the designated portions of the transcript of the evidence before him supply us with a sufficient basis for our conclusion.
In 1951 Wilkes acquired an option to purchase a building and lot located on the corner of Springside Avenue and North Street in Pittsfield, Massachusetts, the building having previously housed the Hillcrest Hospital. Though Wilkes was principally engaged in the roofing and siding business, he had gained a reputation locally for profitable dealings in real estate. Riche, an acquaintance of Wilkes, learned of the option, and interested Quinn (who was known to Wilkes through membership on the draft board in Pittsfield) and Pipkin (an acquaintance of both Wilkes and Riche) in joining Wilkes in his investment. The four men met and decided to participate jointly in the purchase of the building and lot as a real estate investment which, they believed, had good profit potential on resale or rental.
The parties later determined that the property would have its greatest potential for profit if it were operated by them as a nursing home. Wilkes consulted his attorney, who advised him that if the four men were to operate the contemplated nursing home as planned, they would be partners and would be liable for any debts incurred by the partnership and by each other. On the attorney's suggestion, and after consultation among themselves, ownership of the property was vested in Springside, a corporation organized under Massachusetts law.
Each of the four men invested $1,000 and subscribed to ten shares of $100 par value stock in Springside. 6 At the time of incorporation it was understood by all of the parties that each would be a director of Springside and each would participate actively in the management and decision making involved in operating the corporation. 7 It was, further, the understanding and intention of all the parties that, corporate resources permitting, each would receive money from the corporation in equal amounts as long as each assumed an active and ongoing responsibility for carrying a portion of the burdens necessary to operate the business.
The work involved in establishing and operating a nursing home was roughly apportioned, and each of the four men undertook his respective tasks. 8 Initially, Riche was elected president of Springside, Wilkes was elected treasurer, and Quinn was elected clerk. 9 Each of the four was listed in the articles of organization as a director of the corporation.
At some time in 1952, it became apparent that the operational income and cash flow from the business were sufficient to permit the four stockholders to draw money from the corporation on a regular basis. Each of the four original parties initially received $35 a week from the corporation. As time went on the weekly return to each was increased until, in 1955, it totalled $100.
In 1959, after a long illness, Pipkin sold his shares in the corporation to Connor, who was known to Wilkes, Riche and Quinn through past transactions with Springside in his capacity as president of the First Agricultural National Bank of Berkshire County. Connor received a weekly stipend from the corporation equal to that received by Wilkes, Riche and Quinn. He was elected a director of the corporation but never held any other office. He was assigned no specific area of responsibility in the operation of the nursing home but did participate in business discussions and decisions as a director and served additionally as financial adviser to the corporation.
In 1965 the stockholders decided to sell a portion of the corporate property to Quinn who, in addition to being a stockholder in Springside, possessed an interest in another corporation which desired to operate a rest home on the property. Wilkes was successful in prevailing on the other stockholders of Springside to procure a higher sale price for the property than Quinn apparently anticipated paying or desired to pay. After the sale was consummated, the relationship between Quinn and Wilkes began to deteriorate.
The bad blood between Quinn and Wilkes affected the attitudes of both Riche and Connor. As a consequence of the strained relations among the parties, Wilkes, in January of 1967, gave notice of his intention to sell his shares for an amount based on an appraisal of their value. In February of 1967 a directors' meeting was held and the board exercised its right to establish the salaries of its officers and employees. 10 A schuedle of payments was established whereby Quinn was to receive a substantial weekly increase and Riche and Connor were to continue receiving $100 a week. Wilkes, however, was left off the list of those to whom a salary was to be paid. The directors also set the annual meeting of the stockholders for March, 1967.
At the annual meeting in March, 11 Wilkes was not reelected as a director, nor was he ree lected as an officer of the corporation. He was further informed that neither his services nor his presence at the nursing home was wanted by his associates.
The meetings of the directors and stockholders in early 1967, the master found, were used as a vehicle to force Wilkes out of active participation in the management and operation of the corporation and to cut off all corporate payments to him. Though the board of directors had the power to dismiss any officers or employees for misconduct or neglect of duties, there was no indication in the minutes of the board of directors' meeting of February, 1967, that the failure to establish a salary for Wilkes was based on either ground. The severance of Wilkes from the payroll resulted not from misconduct or neglect of duties, but because of the personal desire of Quinn, Riche and Connor to prevent him from continuing to receive money from the corporation. Despite a continuing deterioration in his personal relationship with his associates, Wilkes had consistently endeavored to carry on his responsibilities to the corporation in the same satisfactory manner and with the same degree of competence he had previously shown. Wilkes was at all times willing to carry on his responsibilities and participation if permitted so to do and provided that he receive his weekly stipend.
1. We turn to Wilkes's claim for damages based on a breach of the fiduciary duty owed to him by the other participants in this venture. In light of the theory underlying this claim, we do not consider it vital to our approach to this case whether the claim is governed by partnership law or the law applicable to business corporations. This is so because, as all the parties agree, Springside was at all times relevant to this action, a close corporation as we have recently defined such an entity in Donahue v. Rodd Electrotype Co. of New England, Inc., --- Mass. ---, --- - ---, a 328 N.E.2d 505 (1975).
In Donahue, 12 we held that 'stockholders in the close corporation owe one another substantially the same fiduciary duty in the operation of the enterprise that partners owe to one another.' Id. at --- - --- (footnotes omitted), b 328 N.E.2d at 515. As determined in previous decisions of this court, the standard of duty owed by partners to...
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