Source: https://casetext.com/case/vincel-v-white-motor-corporation
Timestamp: 2019-04-25 18:09:53
Document Index: 262940573

Matched Legal Cases: ['§ 1221', '§ 1221', '§ 197', '§ 12', '§ 1221', '§ 1221', '§ 197', '§ 92', '§ 70']

Vincel v. White Motor Corporation, 521 F.2d 1113 | Casetext
Vincel v. White Motor Corporation
521 F.2d 1113 (2d Cir. 1975)
Vincelv.White Motor Corporation
United States Court of Appeals, Second CircuitAug 11, 1975
Decided August 11, 1975.
Lawrence W. Boes, New York City (Reavis McGrath, Fred Taylor Isquith, New York City, on the brief), for defendants-appellees.
Before MOORE and MANSFIELD, Circuit Judges, and HOLDEN, District Judge.
Chief Judge, United States District Court for the District of Vermont, sitting by designation.
When in November 1966 C.I.T. determined that L.I. Reo was "out of trust" with respect to some of the trucks floor-planned by C.I.T., i.e., L.I. Reo had sold the trucks without paying C.I.T. from the proceeds the amount of the indebtedness owed on the trucks, C.I.T. demanded that White honor its guarantee and purchase all of L.I. Reo's outstanding obligations. White complied, and as a result of White's payment to C.I.T. and certain other amounts owed to White in connection with the financing of L.I. Reo's parts business, in November 1966 the total indebtedness due from L.I. Reo to White approximated $200,000.
At this point, White and L.I. Reo negotiated and executed a financing agreement, dated November 23, 1966. Plaintiff Thomas Vincel, as president, executed the agreement for L.I. Reo, and he and plaintiffs Nuno Tardo and Breen also signed the agreement as shareholders. The agreement contained a mutual release of all existing claims and obligations except for those specified in the agreement. It also provided for the simultaneous execution of a note by L.I. Reo for $195,837.50, the amount then owed to White. The agreement outlined the manner of paying the note, and the note was to be secured by chattel mortgages or other security instruments on new or used trucks then or subsequently owned by L.I. Reo. Vincel also agreed personally to guarantee the note. In addition, the shareholder signatories agreed to place all shares of the voting stock of L.I. Reo and affiliated corporations owned by them in a voting trust, the terms of which were set out in a separate agreement. The agreement designated defendant Glenn F. Kommer, Treasurer of White, as the Trustee. The voting trust agreement dated December 29, 1966, empowered the Trustee to appoint an individual acceptable to him as L.I. Reo's general manager. The voting trust agreement was to terminate upon the payment by L.I. Reo of the indebtedness specified in the financing agreement of November 23, 1966. Paragraph 5 also provided for the possible resignation of the Trustee and gave White the power to appoint a successor.
The agreement explicitly excepted an October 28, 1965 note executed by L.I. Reo for $54,520.43, on which $18,180 was still outstanding.
The financing agreement specified that holders of at least 90% of each class of outstanding stock had to consent to the establishment of the voting trust, or White could, at its option, declare the financing agreement void.
By mid-1967 L.I. Reo had defaulted by selling trucks without turning over the proceeds to White. White then on August 25, 1967 commenced an action in the New York Supreme Court against L.I. Reo and Vincel for breach of the agreements and conversion of the trucks. An order of attachment was obtained, pursuant to which White repossessed (in some cases with and in others without legal process) the vehicles subject to its security interest. L.I. Reo interposed several counterclaims and also moved to vacate the order of attachment. White countered with a motion to replay parts in L.I. Reo's possession, which had also been attached. On December 11, 1967, the State court denied L.I. Reo's motion and granted White's crossmotion.
With the approval of the Bankruptcy Referee after a hearing, and over the objection of the plaintiffs, White and the Trustee in Bankruptcy entered into an agreement compromising all claims. White agreed to pay the bankrupt estate the sum of $100,000. White's claim as a creditor was withdrawn, and the Trustee discontinued his counterclaim with prejudice. In addition, the Trustee and White agreed to stipulate to a discontinuance, with prejudice, of the then pending action in the State Supreme Court. The agreement further provided, however, that it would not affect "the action of White Motor Corporation against Thomas A. Vincel and Thomas A. Vincel's defenses and counterclaims to such action." In short, therefore, all claims existing between L.I. Reo and White were settled upon payment by White of $100,000 and the other consideration stated in the agreement. Claims between White and Vincel were thus preserved.
The action between Vincel and White was dismissed without prejudice on October 15, 1968.
As a result of the settlement, the bankrupt estate was able to pay all the claims of the secured creditors and 70% of the claims of the unsecured creditors. The shareholders apparently received nothing.
The plaintiffs commenced this action in 1969. Jurisdiction was based on diversity of citizenship and the Automobile Dealers' Franchise Act, 15 U.S.C. §§ 1221-1225. The original complaint and a subsequent amended complaint set forth six separate claims for relief: (1) that defendants violated their contractual duties to plaintiff under the two 1966 agreements; (2) that defendants violated their fiduciary duties to plaintiffs under the same agreements; (3) that defendants coerced plaintiffs into entering into those agreements; (4) that defendants and other officers of White conspired to combine White's three separate truck divisions in 1966 and to drive out of business the dealers of two of its divisions, including L.I. Reo, by unfair competition and other anticompetitive practices; (5) that defendants violated their duty to plaintiffs under the federal Automobile Dealers' Franchise Act (15 U.S.C. §§ 1221-25); and (6) that defendants violated their duty to plaintiffs under a similar New York statute N.Y. General Business Law § 197 (McKinney's Consol. Laws, c. 20, Supp. 1974-75).
White also sold trucks manufactured by its White Truck Division. Plaintiffs alleged that White was itself selling its Diamond Reo trucks under the White division name in competition with L.I. Reo and that this was the motive for driving L.I. Reo out of business.
If decision turned on a determination of the accuracy of the differing accounts of the parties, summary judgment clearly would have been inappropriate in this case. But the district court held that the claims raised by the plaintiffs in actuality belonged to L.I. Reo as a corporate entity and therefore cannot properly be asserted by the plaintiffs in their own names and for their own accounts. Any injury that White and Kommer may have inflicted was injury to L.I. Reo, and the plaintiffs suffered damage only derivatively by reason of the diminution in the value of their own apparently worthless stock. The claims raised in this action, it should be noted, were asserted by the Trustee in Bankruptcy against White and settled upon payment by White of $100,000 and release of its claims as a creditor. Thus, that the stockholders themselves received nothing by way of this settlement, the money having been distributed to creditors of L.I. Reo, would be legally irrelevant.
Niles v. New York Central H.R. R.R., 176 N.Y. 119, 68 N.E. 142 (1903), reflects the general rule, applicable in New York and elsewhere, that where an injury is suffered by a corporation and the shareholders suffer solely through depreciation in the value of their stock, only the corporation itself, its receiver, if one has been appointed, or a stockholder suing derivatively in the name of the corporation may maintain an action against the wrongdoer. See also Green v. Victor Talking Machine Co., 24 F.2d 378 (2d Cir.), cert. denied, 278 U.S. 602, 49 S.Ct. 9, 73 L.Ed. 530 (1928); N. Lattin, The Law of Corporations §§ 12, 102 (1971). The theory is generally that the corporate recovery restores the value of the stock. There are, of course, exceptions to this rule that stem from the nature of the wrong alleged or a special relationship between the suing shareholder and the defendant creating a duty, contractual or otherwise, other than that owed to the corporation. For example, in General Rubber Co. v. Benedict, 215 N.Y. 18, 109 N.E. 96 (1915), the court, per Judge Cardozo, upheld the claim of the plaintiff, the principal shareholder of a subsidiary corporation, against one of the plaintiff's directors. The general manager of the subsidiary had also become general manager of a company competing with the subsidiary. The defendant was a stockholder in this competitor and for his own personal gain acquiesced in and approved of the general manager's diversion of funds belonging to the subsidiary for the benefit of the competitor. The court recognized that the subsidiary corporation itself might have an action against the defendant but also upheld the claim of the plaintiff as principal shareholder for the diminished value of its shares. The court emphasized that as a director of the plaintiff, the defendant owed "the duty of good faith and vigilance in the preservation of its property." 215 N.Y. at 21, 109 N.E. at 97. Thus, on the basis of this relationship and the duty flowing therefrom the court permitted the plaintiff shareholder to maintain its suit. To the same effect are Matter of Auditore, 249 N.Y. 335, 164 N.E. 242 (1928) (wrongdoer who looted a corporation, some of the stock of which was owned by his deceased brother's estate, was the administrator of the estate and hence liable apart from his role as officer and director of the corporation), Cutler v. Fitch, 231 App.Div. 8, 246 N.Y.S. 28 (4th Dept. 1930) (wrongdoers charged with mismanagement were pledgees of plaintiff's stock) and Ritchie v. McMullen, 79 F. 522 (6th Cir.), cert. denied, 168 U.S. 710, 18 S.Ct. 945, 42 L.Ed. 1212 (1897) (defendants were pledgees of plaintiff shareholder's stock and through calculated acts of mismanagement sought to diminish the value of plaintiff's stock so as to be able to acquire it cheaply for themselves).
The statutory claims of the plaintiffs must also fail because any such claims belong to the corporation. A stockholder may not bring an action in his own right for anti-trust violations causing corporate injury. Schaffer v. Universal Rundle Corp., 397 F.2d 893, 896 (5th Cir. 1968); Ash v. International Business Machines, Inc., 353 F.2d 491, 493-94 (3d Cir. 1965), cert. denied, 384 U.S. 927, 86 S.Ct. 1446, 16 L.Ed.2d 531 (1966); Walker Distributing Co. v. Lucky Lager Brewing Co., 323 F.2d 1, 10 (9th Cir. 1963), cert. denied, 385 U.S. 976, 87 S.Ct. 507, 17 L.Ed.2d 438 (1966); Bookout v. Schine Chain Theatres, Inc., 253 F.2d 292 (2d Cir. 1958); Ames v. American Telephone Telegraph Co., 166 Fed. 820 (C.C.D.Mass. 1909); Cf. Green v. Victor Talking Machine Co., 24 F.2d 387 (2d Cir.), cert. denied, 278 U.S. 602, 49 S.Ct. 9, 73 L.Ed. 530 (1928).
The Automobile Dealers' Franchise Act, 15 U.S.C. §§ 1221-25, gives "automobile dealer[s]" a right of action to redress unfair actions committed by a manufacturer in connection with a franchise agreement. The term "automobile dealer" is defined as "any person, partnership, corporation, association, or other form of business enterprise . . . operating under the terms of a franchise and engaged in the sale or distribution of passenger cars, trucks, or station wagons." 15 U.S.C. § 1221(c). When, as here, a dealership is doing business in corporate form, the statute contains no hint that it intends a departure from the established principle that the locus of the right of action is the corporation. Although Kavanaugh v. Ford Motor Co., 353 F.2d 710 (7th Cir. 1965), relied upon by plaintiffs, upheld the right of the sole individual shareholder (and the operator) of a dealership to sue in his own name, the circumstances in that case which induced the court to disregard the corporate entity were compelling. The defendant Ford Motor Co. owned all the voting stock of the franchise and controlled the board of directors. To deny Kavanaugh the right to sue would have had the effect of negating the protective features of the Act altogether. The court observed: "It is inconceivable that [Ford], owning all the voting stock of the dealership corporation and being in complete control of it, would ever seek the protection afforded by the statute." 353 F.2d at 717. York Chrysler-Plymouth, Inc. v. Chrysler Credit Corp., 447 F.2d 786 (5th Cir. 1971), permitted shareholders to join the suit of the corporation as individuals.
See also Lewis v. Chrysler Motors Corp., 456 F.2d 605 (8th Cir. 1972).
Here, unlike Kavanaugh, there was no practical disability to L.I. Reo asserting its claims against White. Vincel, Tardo, and Breen at all times were on the board of directors, and any control that White may have had through the voting trust agreement terminated in August 1967 with the resignation of Kommer as Trustee. And this is not a case like York, in which the shareholders are joined with the corporation in a single action. The claims of L.I. Reo against White were settled by the Trustee in Bankruptcy. Although the counterclaims made by the Trustee did not mention the Automobile Dealers' Franchise Act by name, the counterclaim in essence alleged that White's action caused a premature termination of the business, the identical thrust of a claim under the Act. And the settlement agreement approved by the Bankruptcy Referee explicitly relinquished any claim of L.I. Reo under the Act by releasing White "from all claims, rights, demands or causes of action . . . from the beginning of the world to the day of the date of [the] agreement." Under these circumstances, there is no justification for allowing the shareholders of L.I. Reo to maintain an action in their own name.
The plaintiffs-appellants do not contend that their claim as automobile dealers asserted under the New York statute, New York General Business Law § 197 (McKinney's Supp. 1974-75), should be treated any differently than their claim based on the federal Act, and accordingly, this provision is also unavailing as a source for a claim asserted in their individual names.
Although the Trustee never voted his shares to dissolve or liquidate L.I. Reo — or for that matter, voted the shares at all — the plaintiffs argue that by causing the corporation to be managed in such a way as to render inevitable the eventual bankruptcy of the corporation, the Trustee breached paragraph 4.
" No liability. Neither the Trustee nor [the general manager] . . . shall be liable by reason of any manner or thing in any way arising out of or in relation to this Agreement except for such loss or damage as the Voting Trust Certificate holders may suffer by reason of his wilful misfeasance or gross negligence. . .."
Although there was no breach of a specific provision of the voting trust agreement, this conclusion does not put an end to the matter. The Trustee unquestionably was a fiduciary, owing a strict duty to the depositing shareholders and, in a somewhat different sense to those minority shareholders, who, although not actually depositing their shares, consented to the voting trust agreement and signed it. See N. Lattin, The Law of Corporations § 92 (1971). However, the duty owed to the shareholders is in this case indistinguishable from the duty owed to the corporation by reason of the Trustee's having taken effective control of the corporation. Virtually all of the shareholders were parties to the voting trust agreement. The Trustee did not undertake a fiduciary commitment to, for example, a particular stockholder holding a minority share of a corporation. His was an obligation to deal responsibly with all those persons owing any interest in L.I. Reo and cannot, therefore, be separated from his duty to the corporation itself. As a consequence, this case is distinguishable from General Rubber Co., supra, Matter of Auditore, supra and others in which there was a distinct duty owed to particular shareholders and is rather in the class controlled by Niles, supra.
A final word is appropriate. That the Trustee in Bankruptcy was without power to settle the claims of individual shareholders, see 4A Collier on Bankruptcy § 70.04 at 52-53 n. 13 (14th ed. 1971), and in fact negotiated a settlement which preserved Vincel's claims against White, is in itself of no significance unless there are separate and distinct individual claims to be preserved. We think that the district court correctly ruled that the plaintiffs have alleged no such claims, and the judgment of the district court is therefore affirmed.
In summary, we believe, as did Judge Dooling, that "the issues `belonged' to L.I. Reo, related to alleged wrongs having their impact solely on its property and business, and were disposed of by its trustee in bankruptcy for a very substantial consideration." (419A)