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MACEWEN v. STAR-KIST FOODS

March 3, 1966

Neil H. MacEWEN, Plaintiff,
v.
STAR-KIST FOODS, INC. and H. J. Heinz Company, Defendants



The opinion of the court was delivered by: BARTELS

BARTELS, District Judge.

 This action was instituted in April, 1964 for a finder's fee of $1,400,000 against the defendant Star-Kist Foods, Inc. (Star-Kist) and against the defendant H. J. Heinz Company (Heinz) for services rendered in connection with the acquisition by Heinz in April, 1963 of the common stock of Star-Kist for a sum in excess of $2,800,000. Plaintiff also asserts in the pleading a third claim against both of these defendants in quantum meruit for the reasonable value of the services rendered.

 The original answer was served on July 20, 1964, and on September 1, 1965 the defendants moved for leave to amend their answers and to join as an additional defendant, Jacob Rapoport, a Star-Kist director elected in November, 1962, on the ground that the plaintiff had agreed with Rapoport to share the finder's fee in violation of Rapoport's duty to Star-Kist. The Court denied the defendants' motion to join Rapoport but granted them leave to amend their answers to add three defenses and three counterclaims.

 Plaintiff now moves for an order pursuant to Rules 12(b)(6) and 12(f), Fed.Rules Civ.Proc., 28 U.S.C.A., to strike said defenses and counterclaims upon the ground that each of them fails to state a legal defense or counterclaim, respectively, or, in the alternative, for summary judgment pursuant to Rule 56(b), Fed.Rules Civ.Proc., 28 U.S.C.A., dismissing each of said counterclaims.

 The defenses and counterclaims may be briefed as follows:

 First Defense: Plaintiff is barred because he acted as agent and partner of Rapoport who he knew was a Star-Kist director and a representative of a majority of the stockholders of Star-Kist and, as such fiduciary, could not receive compensation for the alleged transactions.

 Second Defense: Plaintiff is barred because he knowingly participated in Rapoport's breach of duty and loyalty to Star-Kist not to reap a personal profit.

 Third Defense: Plaintiff is barred because as agent of Star-Kist he violated the fiduciary duty owed by an agent to his principal, by agreeing to share the finder's fee with Rapoport, a Star-Kist director.

 First Counterclaim: Because plaintiff knowingly participated in Rapoport's breach of trust to Star-Kist, he is liable to Star-Kist for losses caused by his and Rapoport's joint activities including attorney's fees and expenses in defending the action.

 Second Counterclaim: Because plaintiff and Rapoport agreed and conspired to and did violate Rapoport's duties to Star-Kist, plaintiff is liable to Star-Kist for losses caused by his and Rapoport's joint activities including attorney's fees and expenses in defending the action.

 Third Counterclaim: Because plaintiff attempted to and is attempting at Rapoport's direction or with his agreement to obtain a finder's fee from defendants for Rapoport and himself in violation of Rapoport's duty to Star-Kist, he is liable to Star-Kist for losses caused by his and Rapoport's joint activities including attorney's fees and expenses in defending the action.

 In substance, defendants claim that since plaintiff joined Rapoport in Rapoport's breaches of his fiduciary duties, he may not recover for himself and for Rapoport from either Star-Kist or Heinz any monies which Rapoport could not directly recover himself and is also jointly liable to both Star-Kist and Heinz with Rapoport for breaches of Rapoport's fiduciary duties.

 The question of whether the defenses interposed are valid cannot be determined in this case upon the pleadings and affidavits alone. Since the facts and circumstances are not crystal clear, the Court cannot be certain whether the defenses are sufficient as a matter of law. Motions to strike defenses will be denied if they present either disputed questions of fact or doubtful questions of law. Hill, Brown Corp. v. Bosler, D.Rhode Island 1953, 14 F.R.D. 170; see also, 2 Moore's Federal Practice (Second Edition) para. 1221[3], pp. 2320-2321. Both are present here. The refusal to strike at this time, however, is not a determination that the defenses are valid but only a decision that this motion addressed to the pleadings does not afford the Court in this case sufficient opportunity to resolve the issues of illegality. In reaching this conclusion some explanation is required.

 It is elementary that a director of a corporation is a fiduciary and cannot profit from any breach of his fiduciary obligation. But a statement of the rule does not solve the problem of whether the fiduciary in this case actually breached his obligation. As was stated in Securities and Exchange Commission v. Chenery Corp., 1943, 318 U.S. 80, 85-86, 63 S. Ct. 454, 458, 87 L. Ed. 626: "But to say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligation does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?" Consequently, it is not accurate to say that a director cannot under any circumstances deal with his corporation. The fact is that a director may deal with his corporation if at the same time the corporation acts through other directors or officers in the transaction, in which event, in order to vitiate the transaction or contract, proof of unfairness causing injury, or proof of bad faith of that director or of other directors or officers is necessary. See, 3 Fletcher Cyc. Corp. (Perm.Ed.) Ch. 11, ยง 926, pp. 392-393. In such a case the action or vote of the director with a personal interest is not necessary to effect or influence the action of the corporation. The risk involved is that the director's personal interest may override his official obligation so that the transaction does not bear "the earmarks of an arm's length bargain." Pepper v. Litton, 1939, 308 U.S. 295, 306-307, 60 S. Ct. 238, 245, 84 L. Ed. 281; Epstein v. United States, 6 Cir. 1949, 174 F.2d 754, 764. Therefore, the courts will scrutinize with jealous care all personal transactions between a director and his ...


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