311 Mass. 152 | Mass. | 1942
This is a bill in equity brought in March, 1932, for an accounting and other relief predicated upon allegations that the trust, hereinafter described, is entitled to reimbursement from the defendants. The plaintiffs were Jennie E. Cohen and Cecile Cohen, hereinafter referred to as the plaintiffs, and Nathan N. Thorner, all of whom purchased shares of the trust. The master to whom the suit was referred stated that no evidence was offered with respect to the “claim” of Thorner, but that it was agreed that he had died after the institution of this suit. It does not appear from the record that any representative of his appeared. Clara G. Horblit was allowed to intervene as a party plaintiff. She too purchased shares of the trust which she now holds. The defendants are the United States Trust Securities Corporation, hereinafter referred to as the management corporation, the eight individual trustees of the trust or their legal representatives, hereinafter referred to as the trustees, and the United States Trust Company, hereinafter referred to as the bank.
The management corporation was organized in 1925 and was dissolved by act of the Legislature in 1937. The bank owned all of its stock. All of the individual defendants were officers of the bank and of the management corporation, and constituted the entire membership of the finance committee of the bank and of the board of directors of the management corporation, and they were the trustees of the United Securities Trust Associates, hereinafter referred to as the trust, an unincorporated association in the form known as a Massachusetts trust, having transferable shares and having its affairs managed by trustees. The trust was created according to the declaration of trust on September 25, 1929, for the purpose of investing and dealing in stocks and securities of all kinds, and, generally, to carry on the
Steps were taken to comply with the statutes, commonly referred to as the blue sky law, in this Commonwealth and Rhode Island. On September 27, 1929, a circular that had been approved by the trustees, and which was the only one used in selling trust shares both before and after October 4, 1929, was issued. The circular represented, among other things, that, after the sale of the two hundred thousand shares, the trust would start in business with a capital of $10,000,000. Printed in this circular was the statement that its contents were subject to the complete provisions of the declaration of trust, to which reference was made, and that copies of it might be obtained upon request.
Many hundreds of persons purchased shares of the trust. A sharp drop and a considerable fluctuation in the price of securities occurred in late September and early October, 1929, although, commencing on October 4, 1929, the average prices of industrial securities recovered, to some extent, until October 14, 1929, when they began to decline and continued to do so thereafter. October 4, 1929, was the date for the closing and settlement for shares that had been
The contract between the management corporation and the trustees provided, among other things, that no order, direction, approval, contract or obligation on behalf of the trust with or affecting the management corporation shall be deemed binding unless made in writing and signed on behalf of the trust by a majority of the trustees or by a trustee or trustees or by an officer or officers of the trust thereunto duly authorized by the trustees. In the account books of the trust, among the items of securities purchased beginning on October 4, 1929, and including the purchase of the forty thousand shares, there appeared, after the purchases of November 6, 1929, the following: “Approved October 4-November 7, 1929,” followed by the signatures of four of the eight trustees, and the two checks of the trust that were issued for the purchase of the forty thousand shares were signed by two other trustees on October 4, 1929. The defendants did not contend that there was any other writing prior to November 8, 1929, constituting a written approval. The statement of the management corporation filed with the department of public utilities on October 3, 1929, gave the capital “at present” as two hundred thousand shares, and the statement of the trustees
1. The trustees had the burden of showing that they discharged their duties with reasonable skill, prudence and judgment. Ashley v. Winkley, 209 Mass. 509, 525. Knowlton v. Fourth-Atlantic National Bank of Boston, 271 Mass. 343, 350, 351. See Springfield Safe Deposit & Trust Co. v. First Unitarian Society, 293 Mass. 480, 485. The declaration of trust provides, among other things, that the trustees may enter into contracts with the management corporation, and that this corporation may be owned or controlled in whole or in part by any one or more of the trustees, and that the trustees may comprise in whole or in part the officers, “directors and/or stockholders of such corporation.” It also provides that the trustees may buy from and sell to the bank “and/or” the management corporation securities and other property, including shares and other securities issued by the trust, and that any trustee may be a shareholder and otherwise interested in or connected with the bank and the management corporation, and that no contract, transaction or arrangement with the bank or management corporation, or in which otherwise any trustee shall be interested, shall thereby be rendered void or voidable, nor shall any trustee be rendered liable by reason only of his fiduciary relation under the declaration of trust to account for any profit arising from such contract, transac
It is not contended that the trustees were not authorized to deal with the management corporation, but it is contended that their dealings with respect to the repurchase of the forty thousand shares were without authority and in bad faith. The findings of the master that the trust sustained no damage by the repurchase of the shares, that, in fact, the repurchase was of substantial advantage to the shareholders, and that the liquidating value at the close-of business on October 3 and 4, 1929, was at least $50 a share are assailed, as are the findings that the defendants were actuated by the motive to protect the market value of the shares then outstanding, including those of the plaintiffs, that the trustees acted in pursuance of this motive and in the belief that their action was authorized by the declaration of trust, that the fair value of the shares purchased was not less than $50 per share, and that the transaction was in the interests of the shareholders.
At least one actuating motive of the trustees in repurchasing the stock was to protect the market value of the shares then outstanding. See Penniman v. Sanderson, 13 Allen, 193, 206. It is to be noticed that the repurchase was initiated by the brokerage concern, which was urged by the president of the bank and of the management corporation and one of the trustees to complete its commitment without any reduction. No evidence of bad faith or fraudulent motives appears. On the contrary, the trustees not only believed that the repurchase was in the interest of the shareholders, but the master finds that it was of substantial advantage to them, and that the trust sustained no damage thereby. We are of opinion that these findings cannot be disturbed. Nor do we agree with the contention that the repurchase was a mere sham designed to enable the underwriters to retain their commissions. This conclusion does not follow from the findings of the master. Again it is to be noticed that there is no evidence of fraud or bad faith. The trustees had power to decrease the capital account of the trust, and in this connection the declaration of trust provides that unless the trustees otherwise determine, no such change in the capital account shall entitle any shareholder to receive any distribution of any part of the trust property. Passing over this last provision, it appears that all of the trustees assented to the agreement of repurchase, four of them approved the repurchase, two of them, in addition to the four, signed the checks that were issued in payment of the shares, and, later on, the trustees voted to
The bill is brought, so far as its first aspect is concerned, as a shareholders’ bill for the purpose of seeking the redress of wrongs allegedly done to the trust. The rights of the plaintiffs are derivative. See Peterson v. Hopson, 306 Mass. 597, 612. The purpose of this part of the bill is- to vindicate the right of the trust. Unless there is something to vindicate, the bill must fail.
Where, as here, it does not appear that the trust has been injured, or that the plaintiffs, by virtue of their derivative rights have been harmed, there is no occasion for equity to interpose. M’Endre v. Piles & Rollins, 16 Ky. 101. Bessel v. Department of Financial Institutions, 213 Ind. 446, 459, 460. Lyman v. Stevens, 123 Conn. 591, 600, 601. Matter of Juilliard, 171 Misc. (N. Y.) 661, 663, 664. See First National Bank of Boston v. Truesdale Hospital, 288 Mass. 35, 45; Springfield Safe Deposit & Trust Co. v. First Unitarian Society, 293 Mass. 480, 487, 488; Spiegel v. Beacon Participations, Inc. 297 Mass. 398, 432-434; Am. Law Inst. Restatement: Trusts, § 179, comment d; § 209, comment b; § 211, comment d.
None of the trustees received any personal advantage from the transaction. This finding must stand in the light of the other findings. The circular that was issued disclosed a relationship of the trustees with the bank and management corporation and referred to the declaration of trust that authorized dealings between these parties. In the light of these circumstances, while subject to close scrutiny, the transaction was not improper. Nye v. Storer, 168 Mass. 53, 55. Coates v. Lunt, 210 Mass. 314, 318. The
If there was any violation of the blue sky law, so called, as we do not intimate, it is unnecessary to go into this matter, inasmuch as it has not been suggested that the trust was injured by any violations, if any there were.
What has been said covers in the main the exceptions of the plaintiffs to the master’s report. No further comment as to the exceptions is required. Inasmuch as the trust and the shareholders suffered no damage, and the trustees, in the circumstances, were not guilty of bad faith and received no profit or advantage to which they were not entitled, it is not necessary to pass upon the provisions or scope of the exculpatory provisions in the declaration of trust. See Peterson v. Hopson, 306 Mass. 597, 609-610; Milbank v. J. C. Littlefield, Inc. 310 Mass. 55, 62.
2. The other principal transaction of which the plaintiffs complain is a merger that took place in the fall of 1931 between the trust and another investment trust. The master finds that it was recognized by all parties interested, including the trustees, that the proposed merger was advantageous to the shareholders. The declaration of trust contained provisions relative to a possible merger with another investment trust with the consent of the shareholders holding at least two thirds of all the shares outstanding. The management corporation owned over twenty-seven thousand shares of the trust and the trustees realized that without the vote of these shares the proposed merger could not be effected. The individual defendants, as directors of the management corporation, would not vote these shares in favor of the merger unless it was agreed that the
The plaintiffs and the intervener contend with respect to this transaction that the letter sent to the shareholders, hereinbefore referred to, was a studied attempt to avoid the truth, and that the following statement contained in it was misleading and untrue: “The Trustees deem it inequitable to terminate the present management contract unless compensation is paid to the . . . [management corporation] for giving up the management fees which it would receive if it continued to manage the trust,” and they contend further that the letter was so worded as to obscure the fact that if a shareholder did not consent, he would receive one hundred per cent of the new shares, whereas if he did consent, he would receive only ninety-three per cent.
No question has been raised as to the propriety of joining this issue in the bill with other issues presented. See Lee v. Fisk, 222 Mass. 418, 422; Spear v. H. V. Greene Co. 246 Mass. 259, 266-267; Clough v. Cromwell, 254 Mass. 132, 134.
It is to be remembered that the selling circular disclosed the facts as to the management contract, made specific reference to the declaration of trust and stated that copies of it could be obtained upon request. The letter of October 9, 1931, states, among other things, that the trustees are directors of the management corporation; that the management contract contains provisions for its termination by the trustees or by the shareholders; and that the trustees deem it inequitable to terminate the present management contract unless compensation is paid to the management corporation for giving up the fees which it would receive if it continued to manage the trust; that shares received in exchange for shares of the trust will be distributed to the trust shareholders pro rata “except that 7% of the shares otherwise distributable to each assenting shareholder will be paid to . . . [the management corporation] as compensation for cancelling its contract to manage” the trust; that to effect the merger, the written consent of at least two thirds of the outstanding shares must be obtained; and
The master finds that the plaintiff “Jennie E. Cohen” at no time made any inquiry of any of the defendants with respect to her rights; that a number of shareholders communicated with the brokerage concern that was a large holder of shares and with the trustees, and were informed that the seven per cent was deductible only in respect to consenting shareholders and only if two thirds of the share' holders consented to the transaction. “The plaintiffs Cohen made no inquiry of anyone upon receipt of the printed communication from the trustees. The plaintiff, Jennie E. Cohen, understood from the Trustees’ letter . . . that all shareholders rather than 2/3rds had to assent,” although it appears in the letter that, in order to effect the merger, the written consent of at least two thirds of the outstanding shares had to be obtained, and the master finds that she would not have signed the consent if she had known that the seven per cent would not be deducted if she did not sign. The plaintiffs have retained the shares of the other trust that they received in exchange and have received dividends on them. The intervener did not assent to the merger and did not turn in her certificate. The full allotment of shares of the other trust, without the seven per cent deduction, has been issued in her name. The master finds that the plaintiffs were intelligent business women, and, “If relevant,” that they would not have assented to the seven per cent deduction had they understood they could have obtained the advantage of the merger without agreeing to that deduction. The plaintiffs contended before the master that the management contract could have been
There is no finding that the trustees were acting fraudulently or with dishonest motives in the seven per cent transaction, so called. The merger agreement provides, among other things, that the new shares issued to the trust shall be distributed by the latter pro rata among its shareholders, "except that, pursuant to the authorizations obtained from consenting shareholders, seven per cent (7%) of the shares to which such consenting shareholders would otherwise be entitled shall be transferred, assigned and delivered by the . . . [trust], as agent for said shareholders, to the Management Company, and said management contract shall thereupon be cancelled.” The master found that the trustees, in drafting, approving and sending out the letter of October 9, 1931, to the shareholders, felt that more assents would be obtained by phrasing the letter as it was, instead of stating that if a shareholder did not sign, he would obtain one hundred per cent of the new stock, and that the trustees, in sending out the "Shareholders’ Consent” in its prepared form, believed they would receive more authorizations to deduct seven per cent than they would have received if they had given the shareholders an opportunity to consent separately to the merger and the authorization of the deduction.
No doubt the trustees profited indirectly from the seven per cent transaction, but they had been profiting, it is fair to assume, from the management contract. The shareholders are fairly chargeable with notice of the provisions of the management contract and the connection of the trustees with that corporation, constituting, as they did, its
We are of opinion that the sufficiency of the letter of October 9, 1931, having in mind the duty that the trustees owed to the shareholders, is to be determined in the light of all the relevant facts. The plaintiffs paid $53.75 per share. On the last day set for the filing of consents to the merger, the net asset value of each share of the trust was approximately $30.43. In about two years’ time, the value of shares had therefore diminished materially. At that time the market price of these shares was only about two thirds of their liquidating value. The shareholders were told that if they assented to the merger, their investment would be subjected to a further diminution of seven per cent. An
We conclude that the contentions of the plaintiffs cannot be sustained. See Weitze v. Burrage, 190 Mass. 267, 276; Master Bakers Supply, Inc. v. Hopkins, Inc. 300 Mass. 553; Johnson v. Consolidated Film Industries, Inc. 22 Del. Ch. 262, 265. The case at bar is distinguishable from cases like Graves v. Morgan, 182 Mass. 161, and Lynch v. Palmer, 237 Mass. 150, 152.
The result is that the interlocutory decree is affirmed, and the final decree is affirmed with costs.
Ordered accordingly.