Francis v. Brigham-Hopkins Co.

Pearce, J.,

delivered the opinion of the Court.

This is an appeal from a decree of the Circuit Court No. 2, of Baltimore City, dismissing the plaintiff’s two bills of complaint in certain consolidated cases which will now be explained.

The first bill was filed by Isaac H. Francis, Jr., as stockholder, against The Brigham-Hopkins Company, a corpora tion under the laws of the State of Maryland, and Robert D. Hopkins. The plaintiff sued, not only in his own behalf, but also on behalf of all other stockholders of the said Brigham-Hopkins Company, who should come in and contribute to the expenses of the suit.

The bill alleged that during the years ending July 1st, 1903, 1904, and 1905, respectively, Robert D. Hopkins was president and treasurer of said corporation, with a salary of $7,000 per annum; that Isaac H. Francis, since deceased, the father of the plaintiff, was vice-president and manager, with the same annual salary; that Walter Hopkins, was secretary, with the .same salary, and William Harry Francis, another son of Isaac H. Francis, was a director and foreman, and received a salary of $1,560. That the stock of said corporation was divided into 3,000 shares of the par value of $100 each, of which at the time the bill was filed, 1,327 shares were held by Robert D. Hopkins, 1,000 shares by the estate of Isaac H. Francis, deceased; 158 shares by Walter Hopkins; 50 shares by William Harry Francis, and 50 shares by the plaintiff, Isaac H. Francis, Jr., and the remaining 415 shares were held among other members of the Hopkins and Brigham families.

The bill further alleged that before the end of the fiscal year ending June 30th, 1905, Isaac H. Francis became ill, and was unable to attend the regular stockholders meeting on August 1st, 1905, and died September 25th, 1905; that at the meeting of August 1st, 1905, Robert D. Hopkins, Isaac H. Francis, Walter Hopkins and William Harry Francis were elected directors of said company, and that on August 30th,

1905, a meeting of said directors was held at which all were present except Isaac H.' Francis, who was still ill, but who, it is charged, received no notice of said meeting. At that meeting the officers above named were re-elected to their respective offices.

The bill further charges that at said meeting “the directors went through the form of fixing the salary of Robert D. Hopkins at $10,000 a year and that of Walter Hopkins at $8,000,” and also “went through the form of passing a resolution” that the inability of the vice-president to render any assistance for the past two years to the business, made it necessary for his son, William Harry Francis, to take his place, so far as the management of the male help was concerned, and the supervision of that part of the business, and that it was deemed proper to leave the question of the salaries of Isaac H. and William Harry Francis to be settled thereafter.

That at a meeting October 21st, 1905, Robert D. Hopkins, Jr., was elected a director in place of said Isaac H. Francis, then deceased; that Robert D. Hopkins resigned as treasurer, retaining the position of president, and Walter Hopkins resigned as secretary. William Harry Francis was elected vice-president for the unexpired term of his father. Walter Hopkins was elected treasurer and Robert D. Hopkins secretary. Salaries were then fixed as follows: President, $10,000; vice-president, $3,000; treasurer, $8,000; secretary, $2,600.

On August 7th, 1906, the same officers were elected, and the same form was gone through for a further increase of salaries as follows: President, $16,000; vice-president, $7,000; treasurer, $11,000; secretary, $3,600.

The bill then charges “that the above recited increases in the personal salaries of the Messrs. Hopkins were illegal and void (1) as in violation of sec. 1 of Art. 2 of the by-laws o said company, which provides that the compensation to be paid the president, vice-president, treasurer and secretary ‘‘shall be designated by the board previous to their election.” (2) Because it was not competent for Robert D. Hopkins and Walter Hopkins after they had been elected and had assumed the fiduciary position of directors, to vote to themselves an increase of salary, and that it was not within their power to represent and act for that corporation in a matter m which they have a personal interest in conflict with the interest of the corporation. (3) And because ¡$7,000 a year is a reasonable and adequate salary to compensate either Robert D. Hopkins or Walter Hopkins for any services which théy have rendered, or are capable of rendering to the corporation; and that the salaries so voted are excessive and unreasonable and that the voting of them is an unlawful and covert method on the part of the Hopkinses, as the owners and controllers of a majority of the stock, to divert into their own pockets money which should rightfully go as dividends to all the stockholders pro rata.

The bill further charges that the two Hopkins above named, who control said company have been unwilling to allow the estate of said Isaac H. Francis the salary due him at the rate of $7,000 per annum from July ist, 1905, to the date of his death, September 25th, 1905.

Also that the plaintiff had before filing his bill, made written demand on said company to compel Robert D. Hopkins and Walter Hopkins to make restitution to said company of the excess of salaries over $7,000 per annum received by each of them, with which demand said company refused to comply.

The prayer of the bill is that the Brigham-Hopkins Company be enjoined from paying any further salary to Robert D. Hopkins until after such time as the salary theretofore received by him, will, if calculated at $7,000 a year, pay him for the services which he shall then have rendered said company, and that he be required to account with said company, and repay it, with interest at six per cent per annum from the date of their wrongful receipt by him all sums in excess of $7,000 a year; and for. such other and further relief &c. A similar bill was filed by the plaintiff on the same day against Walter Hopkins — making the same allegations and praying the same relief, and the two causes, by agreement, were consolidated, and heard and determined together.

The defendant corporation answered, admitting the allegations as to its incorporation, the amount of its capital stock, and the holding of the shares among its stockholders; also, that the salaries voted the various officers are correctly stated in the bills; but alleges that Isaac H. Francis had been ill for four years prior to June 30th, 1905, and that for two years before his death he had been able to render very little assistance to the business, and was very little at the factory, though he was allowed for the full four years to draw his salary of $7,000. It alleges that the meeting charged in the bill to have been held August 30th was in fact held on August 3rd, and that due notice thereof was given to said Isaac H. Francis, and that the plaintiff also received prompt notice of all said increases of salary, and is guilty of laches in objecting thereto.

It alleges that the provision of the by-law mentioned in the bills, is directory merely, and not mandatory, and that the spirit of the same has been in no way violated by any act of any of the defendants.

It alleges that all the salaries voted are fair and reasonable, and that the increases from time to time therein have not been proportionately more than the increase in the volume of business and the net profits of the company; and that the officers devote their whole time to the management and extension of the business, and that it will appear by reference to the said increases of salary, that the salary which has increased in the largest proportion of all, is that of William Harry Francis, a brother ofthe plaintiff, and a son of Isaac H. Francis, deceased. Robert D. Hopkins and Walter Hopkins adopted the answer of the defendant corporation.

The only testimony offered by the plaintiff was that of Dr. Arthur Williams with reference to the illness of Isaac H. Francis, who said Mr. Francis was totally disabled physically, a year before his death — and that for. one year previous to September, 1904, he was so far physically disabled as to give only about two-thirds of his time to the business, going to it about ten a. m. and leaving about four p. m. The plaintiff also put in evidence, the minutes of various meetings of the directors, showing who was present, and what was done at those meetings.

Robert D. Hopkins and Walter Hopkins testified for the defendants explaining the services rendered by themselves, and by Isaac H. Francis from time to time to the company, and the character and extent of the business, and of its increase, as well as the increase in profits. Each of them said that he did not vote at any time upon the increase of his own salary.

It was shown that ever since 1900, Robert D. Hopkins bought all the goods for the company, involving the exercise of wide knowledge and sound judgment; and that these purchases amounted to over half a million dollars a year; that he had sole charge of the financial end of the concern, borrowing large sums of money for the business of the firm, and individually indorsing the firm paper to the extent of $200,000 at one season. It was shown that Walter Hopkins attended personally to the selling of the goods and the supervision of subordinate salesmen; that he sold from $175,000 to $250,000 of goods annually, and also designed all the styles.

It was shown from the books of the company that the net sales for the year ending June 30th, 1907, were $907,000 and the net profits on sales $89,214.19. Mr. Samuel Rosenthal, of Strauss Brothers, the second largest clothing manufacturing firm in Baltimore, testified in view of the capital, net sales and profits of the Brigham-Hopkins Company as proved in the case, that the salaries of Robert D. and Walter Hopkins objected to, were reasonable and fair; indeed “extremely moderate,” and that they were under paid instead of over paid.

Wm. P. Montague, a straw hat manufacturer of New York City, and also president of the Montague and Gillet Co., a New Jersey corporation, doing business in Baltimore City, and formerly connected with the Brigham-Hopkins Company, testified that he knew Robert D. Hopkins and regarded him as about the most able man in his line of business; that he was the back bone of that concern, and that assuming the capital, net sales and profits to be as stated, he considered a salary of $16,000 for him, and $11,000 for Walter Hopkins to be very moderate.

The foregoing statement of the pleadings and of the testimony fairly presents the case as presented to the Court below.

The learned Judge filed a very careful and elaborate opinion in which he reviewed all the evidence, and carefully considered the. law applicable thereto, and held (1) that the salaries objected to were not excessive and unreasonable, but were just and proper; (2) that they were not invalid because only three members of the board were present when they were voted. His conclusion upon this point was expressed in these words, having special reference to all the facts in this case: “It seems to me that even where one votes for his own salary in a board where he is given the authority to act by the by-laws adopted by the stockholders, and his vote is essential, the act so done should not be absolutely voicl, but should be subject to close scrutiny by the Courts with the burden of proof upon the person benefited by the act, to show that it was just and proper, and that no advantage was taken of the stockholders;” and we concur in this view of the law. (3) He held that the provision of the by-law that the offices should be filled before the salaries were fixed was not mandatory but directory merely.

The reasons for these conclusions are stated with sucji clearness and so well supported by authority that we are satisfied no additional force could be added to them by any opinion we mightjnle in the case. We will therefore affirm the decree of the Court below for the reasons set out in the opinion of that Court, which we will adopt, and request the Reporter to include in the report of this case.

Decree affirmed with costs above and below.