264 Mass. 253 | Mass. | 1928
This is a bill in equity brought for an accounting, and to recover for secret profits and corporate funds alleged to have been unlawfully expended by the defendants, and for other relief. During the course of the hearing six defendants settled their differences with the plaintiff by paying to it various amounts. The only defendants remaining are Francis T. Meagher, John A. McCarthy and George W. Reed, Esq. Demurrers filed by these three defendants were overruled; the same defendants also filed a plea in bar which was overruled; the questions of law thereby raised not having been argued, are to be taken as waived. The case was referred to a master whose report and supplemental report were confirmed and a final decree was entered against the defendant Francis T. Meagher, and in favor of the defendants McCarthy and Reed. The plaintiff and the defendant Francis T. Meagher appealed from the final decree.
The bill alleges that the plaintiff corporation had a large amount of cash and liquid assets at all times during which the alleged wrongful acts of the defendants were alleged to have been committed; that four of the defendants who have settled with the plaintiff were directors and stockholders of the defendant corporation; that one defendant who settled was president of the plaintiff; that the defendants Meagher and McCarthy were directors and stockholders of the plaintiff; that the defendant Reed was an attorney at law and counsel for Meagher and other defendants; that the defendant corporation, Johansson and Downey, all of whom have settled with the plaintiff, fraudulently conspired together to defraud the plaintiff, and that Meagher, McCarthy, Reed and other defendants, at the time or later, joined in the conspiracy. The bill alleges the conspiracy to be that the defendants should obtain control of the plaintiff corporation and of the administration of its funds by the purchase of a majority of its voting stock, by depriving the holders of certain other voting stock of their rights to vote the same, by excluding certain of its directors from the directors’ meetings, and by the pretended election of certain of the defendants as directors and as other officers; that the defendants, or some of them, should, after obtaining control of the plaintiff or its
The master found that, before April 21, 1924, one Pheeny, who is not a party to this suit, was the largest stockholder of the plaintiff, and acted as its general manager and that he had practical control of the corporation; that after that date and until January 27, 1925, the business of the plaintiff was entirely in the hands of the defendants Johansson and Downey, who had then become directors of the plaintiff, and one of them was acting as its treasurer and general manager and the other as its attorney; that the desire of these two defendants to obtain a majority of the stock of the plaintiff “was for the purpose of personal gain only. The profits that might be earned by the corporation through their activities was only a secondary consideration”; that they did not invest any of their personal funds in the endeavor to obtain a controlling interest, but that they had a vital personal interest in its management; that one of them received a salary of $6,000 a year as treasurer and general manager
; It is plain that the loans made by the two directors before referred to, in pursuance of their scheme to get control of the corporation “for the purpose of personal gain only,” were a breach of the fiduciary duty which they owed to the plaintiff. United Zinc Co. v. Harwood, 216 Mass. 474, 476. Allen-Foster-Willett Co., petitioner, 227 Mass. 551, 556. Abbot v. Waltham Watch Co. 260 Mass. 81, 95, 96. These directors purported to act as directors of the corporation and were liable, if they acted in bad faith, whether they were directors de jure or de facto. Thayer v. New England Lithographic Co. 108 Mass. 523, 527. Hudson v. J. B. Parker Machine Co. 173 Mass. 242, 246, 247. Lazenby v. Henderson, 241 Mass. 177, 180. Cunningham v. Commissioner of Banks, 249 Mass. 401, 430.
Meagher was a director of the plaintiff corporation, and while not responsible for errors of judgment, he was charged with the duty of managing its affairs honestly and in good faith. If this duty was violated and resulted in impairment
It is obvious from the foregoing findings that Meagher was a party to the fraud and participated in the scheme to obtain control of a majority of the stock in the plaintiff corporation. The findings of the master clearly indicate that Meagher acted jointly with the others in bad faith in perpetrating a fraud upon the plaintiff by obtaining control of its stock by unlawful means. In these circumstances each conspirator is hable for the acts of the others in pursuance of the conspiracy by which the wrong was finally accomplished. Spaulding v. Knight, 116 Mass. 148. Emmons v. Alvord, 177 Mass. 466, 470. Gurney v. Tenney, 197 Mass. 457, 466.
Apart from his participation in the conspiracy Meagher is responsible for the losses sustained by the plaintiff. It is found that in every way he aided by his vote or otherwise in carrying out the wishes of his coconspirators; that he was working for his own benefit and not for the benefit of the corporation. It is found that he made no proper investigation of the loans above referred to and which resulted in large losses to the plaintiff. It is manifest that he is chargeable with liability on account of such losses, as well as for the
The findings, that two of the directors collected $1,800 each as inspection fees for obtaining loans for borrowers from the plaintiff, and that later further loans were made .for which these directors received further fees of $510, warranted a finding that such sums should have been turned over to the plaintiff. Lazenby v. Henderson, supra. Putnam v. Handy, 247 Mass. 406. Goodbody v. Delaney, 12 Buch. 140. The defendant Meagher is chargeable with $9,524.30, being one sixth of the losses on loans improperly made and sums paid for litigation in which the plaintiff had no interest.
Apart from the liability of Meagher as a conspirator, he is chargeable as a director for failure to administer the affairs of the corporation with care, diligence, honesty and good faith as required by the fiduciary duty imposed upon him. United Zinc Co. v. Harwood, supra. Putnam v. Handy, supra. Folsom v. Smith, 113 Maine, 83.
As to the defendant McCarthy, the master states that he was an intimate friend of Meagher and was elected a director from the preferred stockholders; that he at no time owned common stock but purchased with his own money a block of preferred stock; that he “followed Meagher in every vote, believing that Meagher, by excluding Pheeney, would benefit the corporation. He at no time obtained any financial
The question remains whether the defendant Reed should be held liable for any losses incurred or payments made out of the corporate treasury. The plaintiff does not contend that he can be held as a conspirator, but contends that he is liable for the amounts paid him for services as an attorney, on the ground that such services were not furnished to the corporation, but to the individual defendants. He acted merely as an attorney. At no time here material did he hold an office in the plaintiff corporation. It appears from Reed v. Pheeney, 253 Mass. 90, that he was once clerk and director but resigned these offices in October, 1921. His rights and obligations, therefore, must be treated on the footing that he was an attorney employed by the apparent officers of the plaintiff to bring and to defend suits and actions. The first group of matters in which he was concerned appears to have reference to the stock of the plaintiff held by Mrs. Mulready. That case, so far as we can know about it outside the present record, is reported in Mulready v. Pheeny, 252 Mass. 379. The suits or actions brought by Reed were authorized to be brought by Meagher, a director, and were part of a plan to obtain control of the plaintiff corporation. It is difficult to discover to what many of the items of charge appearing in Reed.’s bill relate. In some of them no accounts are carried out. There do not appear to be any items of charge for services in the trial of the Mulready cases, for printing the brief or argument before this court. The master makes no finding as to the amount of payments made by the plaintiff in the Mulready cases. The main items of Reed’s bill relate to the petitions for mandamus brought by Pheeny and Moran to be reinstated as directors. The plaintiff corporation was named as a party defendant in those petitions, and
The result is that the final decree is affirmed with costs.
Ordered accordingly.