Williams v. Salisbury Ice Co.

Mitchell, J., delivered the opinion of the Court. The appeal in this case is from a decree of the Circuit Court for Wicomico County, Maryland, sitting as a court of equity, passed on the 18th day of February, 1938, dismissing the amended bill of complaint of the appellant, the owner of 100 shares of the outstanding voting common stock of Salisbury Ice Company, a body corporate of the said State of Maryland, the appellee. The bill of complaint, as amended, in substance alleges that the said company owns and operates plants and properties located in the City of Salisbury, for the manufacture and sale of ice, and for cold storage purposes, and that for many years past it has been engaged in retailing its product direct to consumers in the City of Salisbury ¹⁵ and adjacent territory, and in selling the same at wholesale for the purpose of icing railway refrigerator cars and the storage of commodities under refrigeration. It further alleges, as is conceded by the answer of the corporate defendant, that the issued and outstanding capital stock of said defendant consists of 550 shares of voting common stock, of the par value of $100 each, 285 shares of non-voting common stock of like par value, and 491 shares of seven per cent non-voting cumulative preferred stock of the par value of $50 per share.

That on or about April 4th, 1936, one William F. Mes-sick, who at that time was president, treasurer, general manager, and the whole or controlling owner of the capital stock of the W. F. Messick Ice Company, a corporation which was engaged in the same line of business as that in which the defendant was engaged, and was a strong competitor of the latter, for the fraudulent and illegal purpose, and with the fraudulent and illegal object, of obtaining control of the management of the defendant, and by that means make the defendant subservient to the interest of the W. F. Messick Ice Company, and thereby eliminate competition between the defendant and the Messick Company, and otherwise benefit the latter company at the expense and loss of the defendant, acquired control of a majority of the outstanding voting common stock in the defendant company. In line with this alleged fraudulent design, it is asserted by the plaintiff that on April 4th, 1936, the said William F. Messick caused Paul E. Watson, S. Franklyn Woodcock, Thomas N. Potts, Jr., Charles H. Watson, Dorothy P. Taylor, and Elmer C. Williams, the latter being the complainant, to be removed as directors of the defendant company, and the said Paul E. Watson, S. Franklyn Woodcock, and Thomas N. Potts, Jr., as officers of said defendant, to be also removed as such officers. It is then set forth by the plaintiff that the said William F. Messick thereupon caused to be elected in place of the removed directors, in addition to himself, Jesse D. Price, Levin Claude Bailey, E. Homer White, Sallie A. Price, and Ruth ¹⁶ P. Woodcock, and that, following their election, the latter directors elected in place of the removed officials the said Jesse D. Price as president, E. Homer White as vice-president, William F. Messick as treasurer and general manager, and Levin Claude Bailey as secretary. These directors and officers, it is alleged, were respectively reelected at the annual meeting of the stockholders of the defendant held on November 18th, 1936, with the exception of Sallie A. Price and Ruth P. Woodcock, in whose places George 0.

Hendrickson, Jr., and John G. Melson, both of whom at that time, and at the time of the filing of the bill of complaint, were employees, directors and stockholders of the Messick Ice Company, were elected. Specifically, the amended bill of complaint alleges that in furtherance of the fraudulent design of the said William F. Messick, since his procurement of the control of the defendant company, the business and affairs of the latter corporation have been grossly mismanaged and conducted, and its assets have been misapplied under his domination without any interest in its corporate welfare, in utter disregard of the rights of its creditors and stockholders, and solely in the interest of the said William F. Messick, individually, and the said W. F. Messick Ice Company, to the great loss, injury and damage of the Salisbury Ice Company. And in support of the next above allegation, the more serious items cited as representing an abuse of authority on the part of Mr. Messick are set forth as follows: (a) The transfer of the retail ice business of the Salisbury Ice Company to the W. F. Messick Ice Company, and the purchase by the latter company of the delivery trucks and retail ice accounts of the former company, at a price which it is contended was grossly inadequate. Under the terms of this sale, the Messick Company agreed with the Salisbury Company to assume sole control of the latter’s retail ice business, and to purchase one-half of the manufactured ice, used by the former company in supplying the combined retail ice trade of both companies, from the Salisbury Ice Company, at ¹⁷ prices agreed upon between the managers of the two companies, which latter agreement, it is alleged by plaintiff, was violated by William F. Messick.

(b) That in the course of transactions between the two companies, growing out of the above agreement, it developed that more ice was supplied for the purpose of said retail trade, by the Salisbury Company, than by the Messick Company, during the first year in which the above arrangement was in effect, and that the said William F. Messick, in his capacity as general manager of both companies, arbitrarily and without advising with any other official of the defendant company before doing so, caused the Salisbury Company to pay the Messick Company the sum of $3981.27, as a purported refund for 995 tons of ice sold and delivered by the former company to the latter company, for retail consumption; the transaction resulting in a discrimination against the Salisbury Company to the extent of the above payment, and, unadjusted, in effect representing a total loss to the extent of the wholesale price of 995 tons of ice, to the Salisbury Company, and a total gain, to the same extent, to the Messick Company. (c) The alleged payment of counsel fees incurred by William F. Messick in his successful effort to gain control of the Salisbury Company, and due by him individually, out of the company’s funds. (d) The alleged employment of workmen on the regular pay roll of the Messick Company, in part time service with the Salisbury Company, at times when these workmen were not needed in the service of either company, to the end that the loss incident to lack of work for said employees might be borne by the latter company. (e) Failure to adjust and pay to the Salisbury Company unexpired casualty and fire insurance premiums, and unexpired motor license charges, on the trucks purchased by the Messick Company as above set forth.

And, finally, the remaining specific charges of mismanagement and abuse of authority on the part of Mr. Mes-sick as an official of the Salisbury Company, are con ¹⁸ cerned with an overpayment on an increase in his salary, which was made retroactive and authorized by the board of directors of the company; the unfair exchange between the two companies of storage ice of inferior weight and quality, for tank or newly manufactured ice of superior weight and quality; the alleged diversion of cold storage trade from the Salisbury Company to the Mes-sick Company, through the activities of William F. Mes-sick, based on information gained by him through his access to the books and records of the former company, and the general charge that the management of the Salisbury Company under Mr. Messick is so directed as to result solely in his personal interest and in the interest of the Messick Ice Company, to the great loss, damage and injury of the Salisbury Company, and its creditors and stockholders. In his prayer for relief, the complainant seeks the appointment of a receiver to take charge of the assets and business of the Salisbury Ice Company, to the end that the same may be operated under the direction of the court in which the proceedings were instituted, until such time' as the rights of creditors and stockholders of the corporate defendant may be permanently preserved, and for general relief in the premises. The answer of the defendant corporation sets forth that for many years it has been engaged in the manufacture and sale of ice, and in the business of icing refrigerator cars' and the operation of a cold storage plant; but denies that the retail sale of ice to consumers was other than a minor branch of its operations, and asserts that the sale of its equipment for the conduct of its retail business was effected in its interest, because the retail • sale of ice was becoming unprofitable to the company. It then asserts that, on November 20th, 1935, the board of directors which the amended bill of complaint alleges was subsequently, on April 4th, 1936, removed, was illegally elected; and that, during the period of approximately four and one-half months in which that board held office, the defendant corporation was involved in ¹⁹ litigation relative to the membership of the board and the election of officers of the corporation; its business and affairs were not profitably conducted by said directors and officers.

It denies that William F. Messick acquired control of the voting common stock for the fraudulent purposes set forth in the amended bill of complaint, and asserts that on April 4th, 1936, when a new board of directors and new officers of the defendant company were elected to succeed the former and alleged illegally elected board of directors and officers, he did not, as a matter of fact, personally own the controlling interest in said voting common stock of the defendant, it being, however, admitted in the answer that, at the time of the filing of the same, the said Messick was the registered holder of 290 shares of said voting common stock. Finally, in substance, a general denial of every vital allegation found in the amended bill of complaint is asserted in the answer; and, among other things, it is submitted therein that no loss, whatever, has been sustained by the defendant corporation, as a result of mismanagement of its business affairs, or the misapplication of any of its assets, on the part of William F. Messick; and that the defendant corporation is not under his domination and control. It is further submitted that such losses as the defendant corporation did sustain during the fiscal year ending October 31st, 1936, as reflected in its annual statement, “were very largely and almost entirely due to very substantial litigation expenses brought about by the illegal attempt to elect a board of directors on November 20th, 1935, and the subsequent efforts of said illegally elected board to place in office, officers and a general manager and to retain management and control of the corporation illegally, all at the great expense and to the great detriment of the corporation.” And it is asserted in the answer that the defendant is a solvent corporation, without any need, whatever, for the appointment of a receiver for the protection of its assets, in the interest of its creditors and stockholders. The record in the case before us is unnecessarily vo ²⁰ luminous.

It embraces seven hundred and forty pages of printed matter, the greater part of which consists of testimony of which a substantial proportion might well have been eliminated. We are, therefore, in accord with an observation to the above effect found in the opinion of the learned chancellor who heard the case below. Reduced to its final analysis, it appears from the record that the defendant corporation was organized thirty-one years ago, the moving spirit in its incorporation being one Jesse D. Price, who throughout the years since the company began operations, with the exception of the brief interval from November 18th, 1935, to April 4th, 1936, has been a director and officer of the organization. At times, in addition to his position as president or executive officer of the defendant, Mr. Price has filled the important positions of general manager and treasurer, and over a period of many years the record shows that the corporate defendant, under his management, was a prosperous and successful organization.

No stronger justification of this observation need be cited than the following excerpt from the record, which- was not disputed by the sole complainant in this case: “Q. Mr. Price, do you know how long the complainant in this case has owned common stock in this company ? A. He subscribed for it in 1907 when the company was organized. Q. Ninety-four shares? A. Yes sir.

Q. For which he paid how much per share? A. Par, one hundred dollars. Q. Have you made any memorandum from the original records of the company, as to the amount of dividends that the complainant has received on that stock during the years that he owned it? A. Yes sir.

Q. And what is the aggregate amount of dividends that have been paid him on his ninety-four shares of stock, or $9400 investment? A. He has received $32,695.08 or 11% per cent for the whole thirty-one years.” On the other hand, it is proper to note that, while the average dividend paid common stockholders is as above indicated, no dividend has been declared by the directors of the company since 1931, and meanwhile its net profits ²¹ have greatly decreased. The record is replete with transactions evidencing the involvement of the defendant company with the purely personal financial difficuties of Mr. Price, and it is apparent that this circumstance is not conducive to the best interests of the defendant and its stockholders. This situation has resulted in the pledge of the company’s credit for the personal indebtedness of its president and former general manager, who at times was also its treasurer, and at all times drew a lucrative salary from the defendant corporation, but little of which was exacted from him, on account of his indebtedness to the company, by his co-directors.

Mr. Price has meanwhile taken up his abode in Baltimore City, far remote from the scene of his activities as executive head of the defendant company. From a large stockholder, his interests in the company are now practically negligible, and even the small block of stock in the defendant corporation yet remaining in his name is pledged as collateral for a part of his comparatively burdensome indebtedness. Doubtless the above transactions between Mr. Price and the defendant corporation, of which,