Wilshire Oil Company of Texas v. Riffe, 8536.

• Decision Date: 09 October 1967
• Docket Number: No. 8536.,8536.
• Citation: 381 F.2d 646
• Parties: WILSHIRE OIL COMPANY OF TEXAS, Appellant, v. L. E. RIFFE, R. L. Felts, O. Homer Riffe, A. V. Murray, and A. V. Murray, Inc., Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

381 F.2d 646 (1967)

WILSHIRE OIL COMPANY OF TEXAS, Appellant, v. L. E. RIFFE, R. L. Felts, O. Homer Riffe, A. V. Murray, and A. V. Murray, Inc., Appellees.

No. 8536.

United States Court of Appeals Tenth Circuit.

January 5, 1967.

Rehearing Denied March 24, 1967.

Certiorari Denied October 9, 1967.

Richard H. Shaw, Denver, Colo. (Rodney O. McWhinney, Modesitt & Shaw, Denver, Colo., and Robert J. Woolsey, of Farmer, Woolsey, Flippo & Bailey, Tulsa, Okl., of counsel, with him on the Brief), for appellant.

David M. Thornton, Tulsa, Okl. (Gerald G. Stamper, Tulsa, Okl., with him on the Brief), for appellees.

Before PICKETT and SETH, Circuit Judges, and CHRISTENSEN, District Judge.

Certiorari Denied October 9, 1967. See 88 S.Ct. 50.

SETH, Circuit Judge.

This action was commenced by the appellant, Wilshire Oil Company of Texas, against certain of its former employees and a third party. The action sought damages, the recovery of compensation paid to the employees, and for an accounting of profits they allegedly made. The complaint asserted that the former employees engaged in activities which were contrary to their employment contracts and their fiduciary obligations to the company. It also asserts that the third party assisted the other defendants in their activities and was likewise liable.

The trial was had before the United States District Court for the Northern District of Oklahoma, and relief was denied. Appellant Wilshire has taken this appeal, asserting that certain findings of the trial court were not supported by the evidence and that there were errors of law.

The record shows that Wilshire obtained through a merger a company which had theretofore been owned principally by L. E. Riffe. This corporation, following the merger, became a division of Wilshire, but its officers and management continued very much as theretofore. L. E. Riffe became executive vice president of Wilshire and a director. He was in charge of the new division of Wilshire Oil Company which was known as the Riffe Division. Mr. Riffe was employed under a written contract of employment by which he agreed to devote his full business time to the performance of his duties as an employee and officer of Wilshire, and he further agreed that he would not invest in, be employed by, or work for any other firm or corporation "competitive with the Riffe Division." The contract further provided that investment in the stock of a competitor would constitute a breach of the contract. Such a "competitor" was defined to include any firm or corporation engaged in "purchasing and/or selling and/or producing asphaltic materials in any of the areas in which the Riffe Petroleum Company was engaged in purchase and/or sale and/or producing asphaltic materials."

The record shows that the Riffe Division purchased asphalt from various oil refineries in Oklahoma and in Kansas and sold the product in Oklahoma and other nearby states.

At the end of 1961 L. E. Riffe negotiated and signed on behalf of Wilshire Oil Company a contract with Cities Service Petroleum Company for the construction of an asphalt plant. The agreement also provided that Cities Service would furnish raw materials, and Wilshire would sell the products. Wilshire thereafter decided not to proceed with the construction of the plant and directed Mr. Riffe to terminate the agreement. Mr. Riffe then advised several business men of the possibility of constructing the plant, and this group organized the Redstone Asphalt and Petroleum Company. A. V. Murray, a friend of Mr. Riffe, was one of this group, and he purchased sixty per cent of the corporate stock. Redstone thereafter negotiated further with Cities Service, and in June 1962 entered into a new agreement for building the plant and sale of its output. Wilshire was thereby released from its contract with Cities Service. With the Redstone contract Mr. Riffe guaranteed that Redstone would perform for Cities Service, and he also guaranteed a portion of a bank loan made to Redstone.

In May 1962 Mr. Riffe signed an affidavit for Wilshire which purported to set out what his relationship with Redstone was and would be. In this affidavit he stated that his only interest in the Redstone-Cities Service contract would be as a guarantor. He further stated that he was not a stockholder of Redstone nor had any arrangements whereby he would receive any profits which Redstone might receive under its contract with Cities Service. In this affidavit he further stated his only interest in Redstone "monetarily or otherwise, is as a guarantor of Redstone's contract with Cities Service and its loan secured for the construction and equipment of an asphalt plant * * *." He further stated in the affidavit that he would not do anything nor permit anything to be done by reason of his guarantee of Redstone's obligations which would "jeopardize, interfere, or restrict in any manner whatsoever, his duties to Riffe Petroleum Company, a division of Wilshire, and that he shall continue to faithfully and diligently perform such duties required of him as an officer, director and stockholder of Wilshire."

The plant construction by Redstone was delayed and meanwhile it purchased asphalt for sale to its customers from Wilshire at a reduced price. It was apparent that Redstone was intended to be a competitor of Wilshire and would become such competitor when it first commenced the sale of asphalt to its customers.

At the end of May 1962 Mr. Riffe and his wife executed six trust instruments, creating separate trusts for each of their young daughters. The two trustees at the time the trusts commenced were O. Homer Riffe who was a brother of Mr. Riffe, and the other was an attorney of Mr. Riffe. The trust instruments recited that Mr. Riffe and his wife thereby transferred to the trusts the properties which were listed on schedule A attached to the trust. This first schedule was apparently prepared about the time the trusts were created. On this schedule are listed, for each of the six trusts, 150 shares of Redstone stock; an undivided interest in a note of Universal Asphalt Company, which is also in issue here; an interest in a commission contract between A. V. Murray and the corporation which constructed the asphalt plant, in issue in this case; and in addition, oil and gas leaseholds, royalties, and other interests.

The six trusts according to the schedules attached to each thus held in May 1962 thirty per cent of the total issued and outstanding stock of Redstone. The record also shows that Wilshire had no knowledge of the fact that these stocks were in the family trusts of Mr. Riffe.

The record is not entirely clear as to why these shares of Redstone were transferred to the trusts, but it shows that they were transferred by Mr. A. V. Murray from the shares he held in Redstone The court found that in July 1962 Mr. Murray attempted to sell one-half of his stock of Redstone to Mr. Riffe at a price equivalent to Mr. Murray's cost. The court found also that Mr. Riffe rejected this offer and informed Mr. Murray that his employment contract with Wilshire prohibited him from owning such stock. The court further found that Mr. Murray thereafter, "voluntarily and without demand by L. E. Riffe, * * *" transferred the stock to the six trusts for the Riffe daughters and likewise assigned one-half of his interest in the commission for the construction of the Redstone plant. The court found that the transfer of stock was not in accordance with any previous arrangement between the parties, and that Mr. Murray made the transfers "* * to express his appreciation to L. E. Riffe for affording A. V. Murray an opportunity to invest in Redstone * * *." The trust schedule relating to the Redstone stock contained a recitation that the transfer was "subject to payment of $9,000.00 to A. V. Murray for costs of stock." In connection with the transfer of this stock to the trust, Mr. Murray dealt with the attorney for the bank which about a year later became a trustee, and he negotiated the transfer with this person.

The record shows that from the time after Redstone contracted with Cities Service, Mr. Riffe participated in negotiations and made contacts relative to the possible sale of Redstone.

By a written representation dated November 1, 1962, Mr. Riffe stated to Wilshire that neither he nor any relative owned ten per cent or more of the stock of any company engaged in a similar line of business as Wilshire. At the time that this representation was made, the Redstone stock was owned by his daughters' trusts. Some time thereafter, and apparently in December 1962, the Redstone stock held by the trusts was sold to Inland, Inc. It appears that all of the outstanding Redstone stock was sold at that time. The purchaser of this stock required as a condition of its purchase of the entire stock that there be a marketing contract whereby the Riffe Division would market the production of asphalt from the refinery formerly of Redstone.

Thereafter new schedules A were attached to the trusts of the Riffe children, and a bank became one of the trustees. This new schedule does not show ownership of the Redstone stock, but instead shows ownership of all or part of the purchase price therefor, together with other checks and property hereinafter discussed.

The trial court found that the trusts were irrevocable and were not under the control and direction of Mr. Riffe.

The record thus shows that the Redstone stock was stock in a competitive corporation. The record further shows that Mr. Riffe maintained contact with this competitive corporation and participated from time to time in negotiations concerning it. Had he owned this stock directly, there would be no question but what such ownership would constitute a violation of his employment contract and of his fiduciary position as an officer and director of Wilshire. The appellant urges that the fact that the stock was held in trust would make no difference because...