Petition for A Writ of Certiorari — Southland Broadcasting Co. v. Todd

JOHN T. FEY, Clerk

In the

Supreme Court of the United States

OCTOBER TERM, 1956

SOUTHLAND BROADCASTING COMPANY, LESTER KAMIN,

BILLY B. GOLDBERG and PAT COON,

Petitioners,

Vv.

Rex F. Topp,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE }IFTH CIRCUIT

PaT Coon,

1900 Adolphus Tower,

Dallas, Texas,

Pro se and Counsel for the

Other Petitioners.

Of Counsel:

HAROLD HOFFMAN.

a WARLICK LAW PRINTING CO. — 1207 HORD STREET — DALLAS — RI-6711

FR ren nee ene

Jurisdiction Saye

Questions Presented for Review

Statutes and Regulations Involved

Statement of the Case .. EE PUPAL BID nba PAN

Reasons Relied on for the Allowance of the Writ

Argument

Conclusion

NE iss si saccensunctioar keecahensu sah nas teapsoetterdioan ian ceavereeaa

Un Wr oo kg cage ame

Appendix A

Appendix B

Appendix C

ii List of Authorities

Page

Bowles v. Biberman Bros., 152 F. 2d 700

(C.C. A. 8rd, 1945) ioaet 12

Federal Deposit Ins. — v. iin

115 F. 2d 548 (C. C. A. 8rd, 1940) rs Se

Graver Tank & Mfg. Co. v. Linde Air Products Co.,

336 U.S. 271, 93 L. Ed. 672, 69 S. Ct. 535 (1949) 14

Gulbenkian v. Gulbenkian, 147 F, 2d 173

(C. C. A. 2d, 1945) . 12

Leach v. Maryland Casualty C Co., 183 F. 2d 43

WM PO II osc ackcscssheyscsasesescacdemcecess. oe 15

Lee v. State Bank and Trust Co.,

38 F. 2d 45 (C. C. A. 2d, 1930)... on ll

Meccano, Ltd. v. Wanamaker, 253 U. S. 136,

64 L. Ed. 822, 40 S. Ct. 463 (1919) . 10

U. S. v. United States Gypsum Co.,

340 U.S. 76, 95 L. Ed. 89, 71 S. Ct. 167 (1950) 13

U. S. v. United States Gypsum Co., 33 U. S. 364,

94 L. Ed. 746, 68 S. Ct. 525 (1948) 14

U. Bo *y Yellow Cab Co., 338 U. S. 338,

S. Ct. 177, 94 L. Ed. 150 (1949) 15

In the

Supreme Court of the United States

OCTOBER TERM, 1956

SOUTHLAND BROADCASTING COMPANY, LESTER KAMIN,

BILLY B. GOLDBERG and PAT COON,

Petitioners,

v.

REx F. Topp,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

To the Honorable the Chief Justice and the Associate

Justices of the Supreme Court of the United States:

Your petitioners, Southland Broadcasting Company,

Lester Kamin, Billy B. Goldberg and Pat Coon, respect-

fully pray that a writ of certiorari be issued out of and

under the seal of this Court to review the decision of the

United States Court of Appeals for the Fifth Circuit, ren-

dered on March 20, 1956, which reversed and remanded a

judgment of the United States District Court for the

Southern District of Texas sustaining petitioners’ motion

for judgment at the close of respondent’s (plaintiff's)

evidence.

2

OPINIONS BELOW

The United States District Court for the Southern Dis-

trict of Texas did not deliver a written opinion, but it made

complete findings of fact and conclusions of law (R. 669-

689). The opinion of the Court of Appeals is reported at

231 F. 2d 225, and a copy thereof is appended to this peti-

tion (Appendix A).

JURISDICTION

The date of the judgment or decree sought to be review-

ed, and the time of its entry, is March 20, 1956 ( Appendix

B). Petitioners timely filed a motion for rehearing, which

was overruled by the Court of Appeals on April 30, 1956

(Appendix C). Jurisdiction to review this case upon writ

of certiorari is conferred upon this court by 28 U. S. C.

§$1254(1).

QUESTIONS PRESENTED FOR REVIEW

The questions presented by this petition are:

1, Whether the Court of Appeals has denied petitioners

due process of law by depriving them of the opportunity of

presenting their evidence to the trial court.

2. Whether the Court of Appeals has erred in holding to

be clearly erroneous the finding of the trial court that

petitioners Kamin, Goldberg and Coon were the beneficial

owners of Radio Station KCIJ.

STATUTES AND REGULATIONS INVOLVED

There are no statutes or regulations involved in this

case.

3

STATEMENT OF THE CASE

The basis for federal jurisdiction in the court of first

instance is diversity of citizenship, respondent being a citi-

zen of Louisiana and petitioners being citizens of Texas

(R. 4). Petitioner Southland Broadcasting Company is a

Texas corporation organized in 1947 and doing business in

Louisiana (R. 22). The company was organized for the

purpose of engaging in the radio broadcasting business in

New Orleans and Shreveport, Louisiana. In 1947 and 1948

the company was granted construction permits by the

F. C. C. for Radio Station WMRY at New Orleans and

KCIJ at Shreveport.

The original organizers of the corporation were Joe

Darsky and the individual petitioners, Kamin, Goldberg

and Coon. The original capital stock consisted of 1,500

shares of a par value of $7,500.00, later changed to

$22,500.00. Some time prior to July, 1949, Darsky with-

drew, leaving the individual petitioners Kamin, Goldberg

and Coon as the sole stockholders. (R. 23, 488.) At that

time the sole assets of the corporation consisted of the two

construction permits and a few hundred dollars in cash.

Upon Darsky’s withdrawal, Kamin, Goldberg and Coon

determined that they could not acquire the necessary funds

to build both radio stations, It was therefore decided to

dispose of the construction permit for KCIJ at Shreveport.

While the legal title to this permit could not be disposed of

without the permission of the F. C. C., it was agreed be-

tween Kamin, Goldberg and Coon, then the sole stockhold-

baal el

POWLIR GA:

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4

ers of Southland, that thereafter the construction permit

for KCIJ would be treated and considered as their indi-

vidual property, free of all claim by the corporation (R. 14-

15, 23-24). They agreed that they would attempt to sell

this permit, subject to the consent of the F. C. C., and that

the proceeds of this sale would follow the equitable title

thereto and inure to the individual benefit of Kamin, Gold-

berg and Coon. This agreement was without prejudice to

the rights of creditors, since there were no creditors at the

time. At the same time it was decided that Southland

would remain the owner of only one radio station, WMRY

at New Orleans, and that part of the corporation’s stock

would be sold for the purpose of raising funds to build

this station.

Respondent Todd became interested in the radio broad-

casting business through another corporation, Frequency

Broadcasting System, Inc., in which his wife was a sub-

stantial stockholder and subscriber (R. 55, 155-156). Fre-

quency being unable to obtain a permit to construct a

Station in Shreveport, plaintiff Todd and others represent-

ing Frequency solicited Kamin, Goldberg and Coon to sell

Frequency the construction permit for KCIJ (R. 58, 156-

158). These negotiations led to a contract whereby it was

agreed that the KCIJ permit would be transferred to Fre-

quency, subject to F. C. C. approval, in consideration of

which Frequency would pay one-third of its capital stock,

or 500 shares (R. 160-161). Under this arrangement Fre-

quency was to provide the necessary funds for the con-

struction of the station (R. 176-177).

5

Thereafter Todd negotiated with Kamin, Goldberg and

Coon for the purchase of a stock interest in Southland. At

the trial Todd conceded that during such negotiation he

was advised that Southland owned only the WMRY permit

and a few hundred dollars in cash, and that he was not

purchasing an interest in KCIJ, directly or indirectly (R.

63, 163-166). Todd further conceded that he knew of the

Frequency contract for the purchase of the KCIJ permit in

consideration of the payment of 500 shares of Frequency

stock, and that he knew that this stock was to go to Kamin,

Goldberg and Coon rather than to Southland (R. 69-70,

169-171, 409-410, 422, 528). He further conceded that the

purchase price finally agreed upon between him and

Kamin, Goldberg and Coon was based solely upon the esti-

mated value of WMRY when completed. That is, it was

agreed that WMRY when constructed would be worth

$50,000.00, and the purchase price of the 399 shares

acquired by Todd was calculated at 399 1,500 of $50,-

000.00, or $13,300.00 (R. 166-172, 210, 528).

Frequency and Southland entered into a contract where-

by Frequency agreed to construct KCIJ on a cost-plus-ten-

per-cent basis (R. 445), Frequency to assume all liability

upon F. C. C. approval of the transfer of the permit (R.

455). This contract was made with the knowledge of Todd

and with his implied consent and approval (R. 176-178).

No actual transfer of control of KCIJ from Southland to

Frequency could be effected without F. C. C. approval.

From the beginning separate accounting records and

bank accounts were maintained by Southland for KCIJ and

ERS F

SEE SE Nae SR OE SS FN

6

WMRY. WMRY went on the air in January, 1950 (R. 68-

69), and KCIJ went on the air in April, 1950 (R. 74, 448),

From the beginning KCIJ sustained operating losses, which

became more and more substantial (R. 81, 178-179). These

losses were borne by the credit of and loans from Fre-

quency and Frequency stockholders (R. 77-78, 454. 457,

459, 462, 500). Finally it was indicated that Sn ee

approval for the transfer to Frequency might never be

obtained, or if such approval was obtained it would only be

after a long delay, and it was deemed advisable that some-

thing be done about the state of suspense in which KCIJ

was situated. On September 25, 1951, the stockholders and

directors of Southland, including Todd, met in Shreveport

to consider this situation.

At this meeting the delay in the transfer of the permit

was discussed, and also the heavy indebtedness which had

been incurred in the operation of KCIJ and the continued

operating losses (R. 179, 222). It was pointed out that

Southland did not own the beneficial interest in KCLI. but

that KCIJ was the property of Kamin, Goldberg and Coon

(R. 179-180). Todd conceded at the trial that he took po

exception to such statement (R. 179-180, 181). On the con-

trary he, with full knowledge of the status of the affairs of

both Southland and KCIJ as they existed at such time.

acquiesced in the lack of any equity on the part of South-

land in KCIJ (R. 181). At this meeting Todd participated

in discussions looking to Todd’s acquiring an interest in

KCIJ, in the same proportion as his interest in WMRY, so

7

that thereafter KCIJ might become an asset of Southland

for all purposes, both as to its legal and equitable title.

These discussions resulted in Todd’s voting for a cor-

porate resolution which contemplated cancellation of the

existing contract to sell KCIJ to Frequency, and the acqui-

sition by Todd of a stock interest in KCIJ through owner-

ship of Southland stock (R. &6-87, 93-94, 101, 182). The

consideration for the re-acquisition of beneficial title to

KCIJ by Southland was to be the payment by Todd of

$9,300.00 into Southland’s capital, and his agreement to

extend a loan to Southland to be used for the benefit of

KCIJ in the amount of $4,000.00 (R. 94). As additional

consideration for Todd’s undertaking, Kamin, Goldberg and

Coon agreed to provide additional credit for the benefit of

KCIJ in the amount of $13,300.00 (R. 94). This resolution

was passed by unanimous approval (R. 101). It contem-

plated that Todd and his wife would sign a letter signify-

ing acceptance of such proposal (R. 101). Resolutions were

also adopted providing that if Todd and his wife did not

evidence their acceptance of the resolution in writing,

KCIJ would be transferred, subject to F. C. C. approval,

to a new corporation to be wholly owned by Kamin, Gold-

berg and Coon (R. 102-103).

Pursuant to the action taken at this meeting, Kamin,

Goldberg and Coon immediately made available to South-

land, through personal guaranties, loans totalling $15,-

000.00 (R. 205), and Todd and his wife executed a letter

agreement by which they undertook to lend Southland

$4,000.00 and to pay an additional $9,300.00 into the

8

treasury of Southland “for Three hundred ninety nine

shares (399) of Stock in Radio Station KCIJ” (R. 112,

122-128). Later Todd and his wife determined not to carry

out this commitment, and down to the date of trial they at

all times refused demands made upon them for perform-

ance (R. 112-113, 115).

In December, 1951, Todd employed attorneys (R. 123,

208), and for the first time asserted that his stock interest

in Southland entitled him to a proportionate equity in

KCIJ, without any obligation to comply with his purchase

contract. Thereafter Todd filed this suit to enjoin the peti-

tioners from transferring KCIJ to themselves, and for an

accounting. The case was tried to the trial court without

a jury, and at the conclusion of plaintiff's (respondent's)

evidence the trial court granted petitioners’ motion for

judgment, denying the relief prayed for by plaintiff and

granting defendants declaratory relief. The United States

Court of Appeals determined to be “clearly erroneous” the

finding of fact made by the trial court to the effect that

the beneficial ownership of KCIJ was vested in Kamin,

Goldberg and Coon. Without directing the trial court to

proceed with the trial and hear defendants’ evidence, the

Court of Appeals simply reversed and remanded the case

“for further proceedings consistent with this opinion.”

REASONS RELIED ON FOR THE ALLOWANCE

OF THE WRIT

1. The Court of Appeals has so far departed from the

accepted and usual course of judicial proceedings as to call

9

for an exercise of this Court’s power of supervision, in that

the Court of Appeals has decided the case without the

defendants having had an opportunity to present any evi-

dence, and the Court of Appeals has bound the trial court

to decide the case consistent with its opinion which is based

upon plaintiff’s evidence only.

2. The Court of Appeals has applied Rule 52(a) of the

Federal Rules of Civil Procedure in a manner which con-

flicts with the applicable decisions of this Court, in that

the Court of Appeals has held to be “clearly erroneous” a

basic finding of fact under circumstances when there could

be “no definite and firm conviction that a mistake has been

committed.”

ARGUMENT

1. The Court of Appeals has denied petitioners due

process of law by depriving them of the opportunity to

present their evidence in the trial court.

The Court of Appeals in its opinion makes no mention

of the fact that this case was before it on a judgment dis-

missing plaintiff's suit at the close of plaintiff’s evidence.

It is clear from the record, however, that the case was

disposed of before defendants were called upon to put on

their evidence (R. 662-663). All of the witnesses were

plaintiff's witnesses. While one of the defendants was put

on by plaintiff under the adverse party rule, the trial court

specifically limited the defendants in their cross-examina-

tion of this defendant to the matters which had been cov-

ered on direct examination (R. 516).

Tv PEE

Qe renga ELEY OTE AL IRE LEE AS PO A

10

On the basic question of whether the individual petition-

ers Kamin, Goldberg and Coon are the beneficial owners of

KCIJ, the Court of Appeals in its opinion purports to

finally settle the question by holding that they are not the

beneficial owners. At no place does this opinion acknowl-

edge the right of defendants to put on their evidence upon

a new trial. At no place does it acknowledge the right of

the trial court upon remand to determine this question

otherwise, upon all of the evidence which may be presented

by all parties. The Court of Appeals simply holds that the

trial court’s finding on this basic question was “clearly

erroneous,” and then reverses and remands for further

proceedings consistent with the opinion. By “further pro-

ceedings” it is obvious that the Court of Appeals is refer-

ring to the accounting phase of the case (which is not

before this Court), and not to the right of defendants to

put on evidence relating to the ownership of KCI.

Petitioners submit that, under the opinion delivered by

the Court of Appeals and any mandate which is consistent

therewith, the law of the case with respect to the basic

issue has been determined and the trial court will be bound

thereby. This, even though the petitioners have had no

opportunity to present their evidence. Obviously such a

decision denies petitioners one of the basic elements of due

process of lew.

This situation is analagous to that in Meccano, Ltd. +.

Wanamaker, 253 U.S, 136, 64 L. Ed. 822, 40 S. Ct. £63

(1919), which was a suit to restrain patent infringement

and unfair competition. There the trial court granted a

11

preliminary injunction upon affidavits and exhibits sup-

porting the complaint. Upon appeal the plaintiff moved for

a final decision on the merits, upon the ground that an

intervening decree of another court of appeals, relating to

the same matter, was conclusive as to the case at bar. The

motion was overruled, and this was affirmed by the Su-

preme Court. With regard to plaintiff's motion for a final

decree this Court said,

“Petitioner maintains that its motion for final de-

cree upon the merits should have been sustained. But

the appeal was from an interlocutory order, and the

court could only exercise powers given by statute. On

such an appeal a cause may be dismissed if it clearly

appears that no ground exists for equitable relief;

but finally to decide a defendant’s rights upon the

mere statement of his adversary, although apparently

supported by ex parte affidavits and decrees of other

courts, is not within the purview of the act. He is en-

titled to a day in court, with opportunity to set up and

establish his defenses.”

The same situation arose in Lee v. State Bank and Trust

Co., 38 F. 2d 45 (C.C. A, 2nd, 1930), where plaintiff's suit

was dismissed on defendant's motion at the close of plain-

tiff’s case. There the court stated that, under the modern

practice if such a decision be reversed on appeal, a “gross

miscarriage of justice may result, if a decree for plaintiff

be entered without giving defendant an opportunity to go

forward with his evidence.” But the Court of Appeals in

the case at bar has done exactly that.

What the Court of Appeals should have done is illus-

trated in Federal Deposit Ins. Corp. v. Mason, 115 F, 2d

wae

12

548 (C. C. A. 3rd, 1940). There the trial court had dis-

missed the suit at the close of plaintiff's evidence, which

the appellate court determined was erroneous. In its opin-

ion the court stated,

“Since we now hold that the order granting their

motion was erroneous and must be reversed it follows

that the Civil Procedure Rules require that the de-

fendants now be afforded an opportunity to offer

their evidence. We see no reason, however, in a case

such as this, which was tried without a jury, to re-

quire the plaintiff to offer its evidence a second time.

Accordingly we will direct the district judge who

heard the plaintiff's evidence to proceed with the trial

of the case as though the defendants’ motion for dis-

missal had not been granted by him.”

Similarly, in Gulbenkian v. Gulbenkian, 147 F. 2d 173

(C. C. A, 2nd, 1945), the court said in a similar Situation,

“The judgment must be reversed and the cause re-

manded to afford the defendants an opportunity to

offer their evidence. Since the case was tried without

a jury there seems to be no reason for requiring the

plaintiff to offer his evidence a second time. Federal

Deposit Ins. Corp. v. Mason, 3 Cir., 115 F. 2d 548,

552. Consequently we will direct the district judge

who heard the plaintiff's evidence to proceed with

the trial on the issue of damages as though the de-

fendants’ motion for dismissal had not been granted.”

And in Bowles v. Biberman Bros., 152 F. 2d x00 (jc. ©.

A. 3rd, 1945), the matter was handled by the following

Statement in the opinion,

“As we have stated the defendant moved to dismiss

the complaint under Rule 41(b), 28 U. S. C. A. fol-

lowing section 723c, and therefore, on remand, it pos-

sesses the right to proceed to its defense.”

13

And this Court has recognized that method of procedure

in U. S. v. United States Gypsum Co., 340 U.S. 76, 95 L.

Ed. 89, 71 S. Ct. 167 (1950). There the trial court had

dismissed the complaint, under Rule 41(b), at the close of

the plaintiff’s evidence. On a former appeal to the Supreme

Court the order of dismissal was reversed and the cause

remanded, Regarding the right of the defendants to intro-

duce evidence at the second trial this Court on the second

appeal said,

“Of course, when we remanded the case to the Dis-

trict Court the defendants had the right to introduce

any evidence that they might have as to why all or any

one of them should be found not to have violated the

Sherman Act. Our reference at 333 U. S. 402, footnote

20, to Gulbenkian v. Gulbenkian (C. A. 2d N. Y.),

147 F. 2d 173, 158 A. L. R. 990, shows that. See Fed-

eral Deposit Ins. Corp. v. Mason (C. A. 3d Pa.), 115

F. 2d 548, 552; Bowles v. Biberman Bros. (C. A. 3d

Pa.), 152 F. 2d 700, 705.”

The failure of the Court of Appeals in the case at bar to

instruct the trial court to hear defendants’ evidence was

vigorously called to the attention of the appellate court in

a motion for rehearing, but that motion was overruled

without comment ( Appendix C). It can hardly be concluded

that the Court of Appeals was assuming the trial court

would grant defendants that right, when the Court of Ap-

peals in its opinion does not appear to recognize that the

case has not been fully tried below. Petitioners submit that

they should not be subjected to the risk that the trial court

upon a retrial may conclude that it is bound by the holdings

of the Court of Appeals as being the law of the case, but

Qe rerteno cmt es

14

that on the contrary petitioners are entitled to have this

Court clarify their rights upon remand, as the Court of

Appeals should have done.

2. The Court of Appeals erred in holding to be clearly

erroneous the finding of the trial court to the effect that

petitioners Kamin, Goldberg and Coon were the beneficial

owners of radio station KCIJ.

Under Federal Rule of Civil Procedure 52(a), the basie

finding of fact here (that Kamin. Goldberg and Coon were

the beneficial owners of KCIJi could be reversed by the

appellate court only if “clearly erroneous.” This Court has

said that a finding is clearly erroneous when the reviewing

court on the entire evidence is left with the “definite and

firm conviction that a mistake has been committed.” U.S.

v. United States Gypsum Co., 33 U.S. 364,94 L. Ed. 746,

68 S. Ct. 525 (1948).

This Court has said further that the rule requires that

an appellate court make allowance for the advantages pos-

sessed by the trial court in appraising the significance of

conflicting testimony. Graver Tank & Mfg. Co. v. Linde

Air Products Co., 336 U.S. 271, 93 L. Ed. 672, 69 S.Ct.

535 (1949). We earnestly submit that here the appellate

court did not apply Rule 52a: to the basic finding in this

manner. On the contrary it simply donned the robes of the

trial judge and decided the case as if it had heard the

testimony and was entitled to award a judgment according

to which way it felt the evidence preponderated.

The trial judge having decided the case for the defend-

ants, may the appellate court reverse that judement simply

15

because it would have decided the case the other way had

it presided at the trial? We think not. And on that subject

this Court has said in U. S. v. Yellow Cab Co., 338 U.S,

938, 70 S. Ct. 177, 94 L. Ed. 150 (1949),

«* * * While, of course, it would be our duty to cor-

rect clear error, even in findings of fact, the Govern-

ment has failed to establish any greater grievance

here than it might have in any case where the evi-

dence would support a conclusion either vay but where

the trial court has decided it to weigh more heavily

for the defendants. Such a choice between two per-

missible views of the weight of the evidence is not

’ 99

‘clearly erroneous’.

The appellate courts of our federal judiciary are not the

triers of fact even in close cases. As was said in Leach v.

Maryland Casualty Co., 183 F. 2d 43 (C. A. 7th, 1950),

“That it is a close case on the facts is hardly open

to doubt; in fact, it is so close that the controlling

issue of fact could well have been found either way.

This court, however, as oftentimes stated, is not the

trier of facts; that is the function of the court below

and we are without right to refuse to accept or to set

aside the finding thus made ‘unless clearly erron-

eous.” This we cannot say.” ;

Petitioners fee] that even a cursory examination of the

significant portions of the testimony will reveal that the

basic finding could in no sense of the words be “clearly

erroneous.”” The following testimony of plaintiff and his

own witnesses seems to eliminate any doubt:

1. Respondent Todd freely admitted that the purchase

price of his stock in Southland was calculated on the basis

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Fk ARP ERR DITION RE RE! ot ore

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16

of the value of Radio Station WMRY alone, although

Southland held legal title to the KCIJ construction permit

at the time (R. 166-172, 210). Thus to award him an inter-

est in KCIJ, through Southland, will give him a windfall]

for which he concedes he has paid absolutely nothing.

2. Respondent Todd freely admitted that, when he pur-

chased Southland stock, he knew he was buying an interest

in WMRY only (R. 163, 165, 169, 171, 187, 193, 198, 221-

222).

3. Before he purchased stock in Southland Todd was

told that Southland’s permit for the construction of KCI

was to be sold to Frequency, and that the consideration

(500 shares of Frequency stock) was to be the property of

Kamin, Goldberg and Coon individually (R. 69-70, 169-

171, 409-410, 422, 528).

4. Respondent Todd admitted that Southland was to end

up with WMRY oniy (R. 95, 409-410, 420-421, 423, 424,

429, 528). His principal complaint, and his supposed justi-

fication of his later claim to equal rights in KCIJ, seem to

be his claim that petitioners Kamin, Goldberg and Coon, as

the original organizers of Southland, paid less for their

stock than Todd paid for his (R. 96-100).

5. Respondent Todd had attended a stockholders’ meet-

ing where it was explained that he had no interest in KCTJ,

and Todd made no protest of any nature (R. 179-180, 181).

On the contrary he admitted at the trial that he voted for

—

17

a corporate resolution reciting that KCIJ was not a South-

land asset, and calling upon him to make a contribution to

Southland capital in consideration of the agreement of

Kamin, Goldberg and Coon allowing Southland to reac-

quire the beneficial title to KCIJ (R. 86-87, 101, 102).

6. Todd testified that his secret feelings were that, if

the transfer of KCIJ to Frequency did not go through, he

should share in the ownership and profits of KCIJ because

the assets of Southland would have to support KCIJ (R.

109, 141, 199-200). But it is interesting to note that, prior

to the stockholders meeting at which Todd voted to pur-

chase an interest in KCIJ through Southland’s reacquisi-

tion of the beneficial interest therein, WMRY had ad-

vanced for the operations of KCIJ only the sum of $360.31

(R. 347-348, 465, 499). Thereafter, Todd and his wife

having signed a contract agreeing to purchase a propor-

tionate interest in KCIJ, through his Southland stock, pe-

titioners were certainly entitled to assume that Todd would

pertorm his contract and that the ownership of both sta-

tions would be identical (R. 475-476). It was only natural,

then, that the funds of WMRY would be used to some ex-

tent for the support of the other station thereafter. For

Todd to complain of advances thereafter made from

WMRY to KCIJ seems to be without any justification,

since he himself was responsible for this state of affairs.

Of course, if WMRY is indebted to KCIJ, this can be

easily adjusted in an accounting. But Todd’s claim that

the mere making of the advances changed the title to all

of the assets of KCIJ, when the construction permit ad-

18

mittedly was the property of Kamin, Goldberg and Coon

and the advances were made only after Todd signed his

agreement to purchase an interest in KCIJ, seems to be

wholly without merit.

7. Todd also claims that the construction permit for

KCIJ, which he admits was owned by Kamin, Goldberg

and Coon, should be treated separately from the physical

assets connected with the station itself. As to the latter,

Todd’s theory is that they were never owned beneficially

by Kamin, Goldberg and Coon because the credit of South-

land was committed to build KCIJ, and the indebtedness

was paid off out of profits of KCIJ. It is true that South-

land’s credit was committed by virtue of the construction

contract with Frequency, whereby Southland agreed to pay

Frequency to build the station on a cost-plus basis (R. 445).

But at that time Frequency was committed to purchase the

station, and the construction contract was executed because

the transfer could not take place without F. C. C. approval.

It is clear from the record that this contract had Todd’s

approval, because his wife being a stockholder in Fre-

quency it was to his interest to have the transfer of KCIJ

made from Southland to Frequency (R. 176-178, 215). And

it is also clear that ample provisions have been and will

be made for the assumption of any such indebtedness, and

for the indemnification of Southland against such indebt-

edness, if this Court affirms the trial court’s decree (R.

103, 140). Under the original understanding between Peti-

tioners and Todd, whereby the legal title to KCIJ was in

Southland but the beneficial ownership was in Kamin,

19

Goldberg and Coon, of course Southland as trustee for

Kamin, Goldberg and Coon would have to obligate itself

for the payment of any debts relating to the trust res. But

certainly Kamin, Goldberg and Coon, as the beneficiaries

of the trust, would be the parties ultimately liable, and

Southland as the trustee would be entitled to reimburse-

ment and indemnification against obligations assumed by

it within the authority of the trust. Todd’s theory that the

incurring of indebtedness by a trustee, for the benefit of

the trust res, changes the beneficial ownership of the prop-

erty from the beneficiary to the trustee, is indeed a novel

theory when examined in this light.

8. At the stockholders’ meeting in September, 1951, peti-

tioners Kamin, Goldberg and Coon stated to Todd that

KCIJ was badly in need of funds (R. 179, 222), and that

they were going to obtain credit for KCIJ’s operations

through their personal guaranties (R. 224). Todd sug-

gested that he should be permitted to make his contribu-

tion in the same manner (R. 224). Kamin, Goldberg and

Coor, however, did not agree to that. They stated to Todd

that he had no interest in KCIJ, and that he would first

have to buy an interest in it (R. 224). With that back-

ground, Todd proceeded to purchase an interest in KCIJ

(R. 224). The written agreement executed by Todd and his

wife, wherein they agreed to purchase “Three hundred

ninety-nine shares (399) of Stock in Radio Station of

KCIJ” (R. 122), constitutes a conclusive admission that

respondent was agreeing to purchase something he did not

then own. Since Todd has at all times refused to go through

Bi POSTER:

Taam

20

with the purchase, it seems logical to assume that the own-

ership of KCIJ would remain as Todd admitted it was

originally—in Kamin, Goldberg and Coon.

9. Todd inferred at the trial that the agreement which

he and his wife signed to purchase an interest in KCLJ

was signed “under duress.” The compulsion he relied upon

was a statement allegedly made by petitioner Kamin that

if the letter was not signed, he (Kamin) would see that

Todd “never got a dime out of it” (R. 110-111). Far from

being any form of duress, this statement, if made, seems

to mean only that Kamin contended Todd owned no inter-

est in KCIJ, and that unless Todd agreed to buy such an

interest Kamin would see that he did not share the profits

which might accrue from KCIJ. At the trial Todd did not

purport to know what Kamin meant by the statement, but

admitted that he did not know (R. 111). This seems to be

a very flimsy basis on which to attempt to avoid the obli-

gation of a contract, and upon which to attempt to avoid

an admission that Todd had no stock interest in KCLI.

The Court of Appeals does not attempt to explain away

the compelling testimony discussed in numbered Para-

graphs 1 through 9 above. On the contrary the Court of

Appeals starts with the incorrect premise that Todd voted

against the arrangement calling upon him to buy a stock

interest in the assets of KCIJ. (See the court’s statement

that Todd voted against the resolution, at 231 F. 2d 229.

See Todd’s testimony at R. 182, where in three different

places he testified that he voted for the resolution. Also the

minutes indicated Todd voted for it. R. 101.) The court

21

then simply announces, without any discussion of the rec-

ord, that KCIJ was not the property of Kamin, Goldberg

and Coon, but was owned by Southland. The court does

not mention the fact that Todd had agreed that KCIJ

would be beneficially owned by Kamin, Goldberg and Coon.

The court does not mention the fact that, when Todd signed

an agreement to purchase a stock interest in KCIJ, he ad-

mitted he owned no such interest. The court cites cases

dealing with the law relating to forfeiture of contract

rights, but does not attempt to explain how Todd ever ac-

quired any rights in KCIJ which could be the subject of

a forfeiture.

We submit that the inequity of the result reached by the

Court of Appeals is obvious. It permits Todd to acquive

a 29° interest in KCIJ for nothing, when he had agreed

to pay $15,950.00 for a 10° interest in the same station

through subscription to Frequency stock (R. 161-162, 425).

It permits him without cost to acquire an investment the

entire value of which was created by the efforts and indi-

vidual credit of Kamin, Goldberg and Coon (R. 8&2, 474).

It permits him to acauire without any contribution the

fruits of the KCIJ construction permit which he freely ad-

mitted was owned by Kamin, Goldberg and Coon, for which

tney had refused an offer of $12,000.00 made by Todd and

his associates through Frequency (R. 159-160). Without

eppearing to recognize the obvious inequity of this situa-

tion, the Court of Appeals simply concludes that the trial

court’s finding relating to the beneficial ownership of

”

KCIJ was “clearly erroneous.

22

CONCLUSION

In conclusion, petitioners respectfully submit:

1. That the decision of the Court of Appeals should be

reversed because it deprives petitioners of the right to pre-

sent their evidence, and binds the trial court to proceed

consistent with its opinion which is based on respondent's

evidence alone.

2. That the decision of the Court of Appeals should be

reversed because there is no evidence in the record upon the

basis of which the appellate court could, consistent with the

interpretation of Rule 52(a) as announced by this Court,

hold that the basic finding of the trial court is clearly

erroneous.

Wherefore, petitioners pray that the decision of the

Court of Appeals be reversed and that of the trial court

affirmed, or in the alternative, that the decision of the

Court of Appeals be modified so as to direct the trial court

to proceed with the trial as though petitioners motion for

judgment had not been granted.

Respectfully submitted,

PAT Coon,

Pro se and Counsel for the

Other Petitioners.

PAT Coon.

Of Counsel:

HAROLD HOFFMAN,

23

PROOF OF SERVICE

I, Pat Coon, one of the attorneys for the petitioners

herein, and a member of the Bar of the Supreme Court of

the United States, hereby certify that, on the day of

July, 1956, I served a copy of the foregoing Petition for

Writ of Certiorari on Rex F. Todd, respondent, by mailing

a copy in a duly addressed envelope, with first class post-

age prepaid, to his attorneys of record, B. Jeff Crane and

Ben H. Rice, c’o Vinson, Elkins, Weems and Searls, 11th

Floor, Esperson Building, Houston, Texas.

1900 Adolphus Tower,

Dallas, Texas.

Gare

“YER:

25

APPENDIX A

In the

United States Court of Appeals

FOR THE FIFTH CIRCUIT

No. 15,536

Rex F. Topp,

Appellant,

v.

SoUTHLAND BROADCASTING COMPANY, LESTER KAMIN,

BILLY BR. GOLDBERG and PAT COON,

Appellees.

Appeal from the United States District Court for the

Southern District of Texas

(March 20, 1956.)

Before TUTTLE, CAMERON and JONES, Circuit Judges.

JONES, Cireuit Judge: The appellant, Rex F. Todd, is

a citizen of Louisiana. The appellee, Southland Broadcast-

ing Company, is a Texas corporation. The other appellees,

three individuals, Lester Kamin, Billy B. Goldberg, and

Pat Coon, are citizens of Texas. Plaintiff sues as a stock-

ie et

ata td

TBS ETC FO WRY LATE gw

Pie Se,

2 DEEL) DD LIMES eer £500

De ae ee tae ee

e | OE eT

26

holder of and on behalf of Southland Broadcasting Com-

pany charging mismanagement and misfeasance of the

individual defendants in the operation of the Company.

Federal jurisdiction is dependent upon diversity of citizen-

ship. Doctor v. Harrington, 196 U. S. 579, 25 S. Ct. 355,

49 L, Ed. 606, The individual parties will be sometimes

designated by name and the corporate appellee will be

sometimes referred to as Southland.

Southland was incorporated in 1947 with 1,500 shares of

common stock of the par value of $5 per share. Joe Darsky

subscribed for 765 shares. The other stock was originally

acquired by Kamin, Goldberg, and Coon. The Darsky stock

was surrendered to Southland in 1949. Southland had two

permits from the Federal Communications Commission to

construct radio stations, one, WMRY, at New Orleans, and

another, KCIJ, at Shreveport. Frequency Broadcasting

System, a corporation which had been promoted in large

part by appellant and of which appellant’s wife was a sub-

stantial stockholder, had applied for a permit to erect and

operate a radio station at Shreveport. The permit was not

granted. The appellant purchased 399 shares of Southland

treasury stock. It was then contemplated that Frequency

would build station KCIJ for Southland with funds of

Frequency, and that Southland would transfer KCIJ to

Frequency in consideration of 500 out of a total of 1,500

shares of Frequency’s stock. These 500 shares, it was

understood, were to be distributed to Kamin, Goldberg, and

Coon, and that the interest of appellant and his wife in

27

KCIJ would inure from a stock ownership in Frequency

rather than through Southland.

WMRY in New Orleans was completed and put in opera-

tion in January of 1950. KCIJ went on the air in April,

1950. At the outset it sustained operating losses. The Fed-

eral Communications Commission delayed action upon the

application for the transfer of the Shreveport station from

Southland to Frequency. The appellant, a resident of

Shreveport, spent considerable time assisting in the opera-

tion of KCIJ. In September of 1951, the stockholders and

directors of Southland, of whom appellant was one, met to

consider the condition of KCIJ. At this meeting it was

proposed and a resolution of the stockholders directed that

the effort to procure a permit for the transfer of KCIJ to

Frequency be abandoned. Then a resolution was adopted

in which it was recited that when appellant purchased his

Southland stock the contract for the transfer of KCIJ had

been made and hence Southland would own only one sta-

tion, WMRY, but if Southland retained KCIJ it would own

two stations. The resolution provided that, if the Federal

Communications Commission permitted the withdrawal of

the application for transfer, Kamin, Goldberg, and Coon

would endorse the corporation’s note for $13,300 “and in

consideration therefor’ the appellant agreed to pay $9,300

into the treasury of Southland “as further consideration

for the capital stock purchased by him” and the appellant

would lend $4,000 to Southland. It was further resolved

that each of the four principal stockholders would evidence

his acceptance of the proposal by a letter to the corpora-

PV aN Re” GE ee aT yee ow ee eee te

a ar hi Sia

Brera pecmennmngene ren tacenyeAt MEME DE N TOR REIN Set

28

tion. At this meeting another resolution was adopted recit-

ing that salaries of officers had been set up but the finan-

cial circumstances made it inadvisable that they be paid or

carried on the books and such salaries were “stricken from

the books and records.” By this resolution it was “mutually

agreed between the stockholders” that officers and direc-

tors receive no salary or compensation for services until

Southland’s debts become liquid and current “unless this

is changed by a vote of all of the stockholders.” Appellant

testified that there was a discussion of the possibility of

Southland going into bankruptcy.

In November of 1951, Kamin went to Shreveport and

while there the appellant wrote and signed a letter in com-

pliance with the resolution relating to his proposed ad-

vances to the corporation. The terms of the letter were

dictated, so appellant testified, by Kamin, and signed by

appellant acting, so he said, under a threat of Kamin that

if appellant didn’t “go along with their way on the thing

he [Kamin] would see that I [appellant] never got a dime

out of it.” In the letter, which was written during the

latter part of November, 1951, and directed to Kamin as

President of Southland, it was provided that the appellant

would pay $4,000 into the treasury of Southland in the

form of a loan, and would pay $9,300 for 399 shares of

Southland stock in three semi-annual payments beginning

March 1, 1952, if needed. In the event the money was not

needed the $9,300 should be deducted from any dividends

due and owing to appellant. The appellant testified that at

this meeting Kamin told him that the money wouldn’t be

29

needed right away. About this same time, perhaps as a

part of the same transaction, Southland bought from J. FE.

Wharton his Southland stock, 177 shares, of which 150

shares had been purchased for $5,000 and 27 shares had

been issued for services as a radio engineer. The price

agreed upon for the resale to Southland was $20,000, of

which $5,000 was paid at the time of the deal. Soon after

appellant had given the letter to Kamin, perhaps within a

week or two, Kamin telephoned appellant and asked him

to put up the money as agreed. Appellant did not make the

loan as he had agreed by letter. This refusal was followed

by a letter from Goldberg, then Secretary of Southland, to

appellant saying that the manager of KCIJ was being

advised that appellant had not purchased and did not own

any interest in KCIJ and that the manager would be

expected to receive his orders from Kamin, then President

of Southland. Thereafter appellant did not participate in

the operation of KCIJ.

In October 1952, the appellant stated that the agreement

regarding KCIJ was made under duress and he would not

comply with it. A new Board of Southland was elected, not

including appellant. The minutes of an October 25, 1952,

meeting of the Board of Directors recited a statement of

the President that the affairs of the corporation had been

and were being managed by a Management Committee of

Kamin, Coon and Goldberg, each of whom was voted a

salary of $7,200 for the year 1952. In February 1953, at a

stockholders’ meeting a resolution was adopted upon the

votes of Kamin, Goldberg and Coon, by which it was pro-

. Oe Oe Loe,

Qos rer mrs: ae AE

30

vided that Southland should seek Federal Communications

Commission approval of a transfer of KCIJ to a new cor-

poration to be wholly owned by Kamin, Coon and Goldberg.

The appellant, Southland’s only other stockholder, voted by

proxy against the proposal. The appellant filed suit the

following month, March 1953, seeking an injunction

against the transfer of Radio Station KCIJ to Kamin,

Goldberg and Coon, or to a corporation formed by them, or

otherwise except for a full consideration and with the

approval of eighty per cent of the holders of Southland

stock. The appellant sought also an accounting from the

individual appellees of their transactions with the cor-

poration,

Much testimony was taken at the trial. It appeared that

separate accounting records were kept for each of the two

radio stations and a considerable number of cross-entries

between the accounts of the two stations were made on the

corporation’s books from time to time. On one occasion

$20,000 was borrowed for income tax payments and

charged to KCIJ. The accounting and cross-accounting as

between the two stations is confusing. That the Certified

Public Accountant who audited Southland’s books was not

wholly free from this confusion is indicated by his response

to a question put by the Court regarding the above-men-

tioned $20,000 borrowing. The witness, Earl F. Walborg,

said:

“Well, I put down my explanation here. The way I

see it, the intention of this entry is apparent?y to infer

that Station KCIJ made a loan of $20,000 at WMRY’s

bank, the Progressive Bank, in New Orleans, and de-

31

posited the funds to the WMRY bank account. Actu-

ally, the loan liability was and is recorded on the

WMRY books.”

The payments made on the Wharton stock, something over

$15,000, were originally credited toKCTJ, later transferred

to WMRY. On one occasion the accountant said that if

WMRY and KCIJ had separate books, as distinguished

from separate accounts in the same set of books, each

would have been out of balance by $20,000. The corporation

began making money early in 1952. In that year Southland

had earnings before Federal income taxes and officers’

compensation of $67,750. In 1953 the comparable figure

was $68,814. Salaries and bonuses to Kamin, Goldberg and

Coon were paid or accrued for 1952 in the amount of

$21,600 and for 1953 in the amount of $36,000. Advances

were made, from time to time, of Southland’s funds, to

John H. Pace, Manager of KCIJ. It is indicated that some

of these funds were to be used for promoting television

stations to be owned, in whole or in part, by the individual

appellees in competition with Southland and in which

neither appellant nor Southland would have any interest.

The court made findings of fact and conclusions of law.

The basic finding was that appellant understood at the

time of his acquisition of Southland stock that station

KCIJ was to be the individual property of Kamin, Geld-

berg and Coon, free and clear of any claim of Southland.

It was found that in 1951 the financial affairs of KCIJ

were desperate, that resolutions were adopted providing

that if appellant did not evidence his acceptance of the

32

prior resolution in writing, KCIJ should be transferred to

a new corporation to be wholly owned by Kamin, Goldberg

and Coon. There are findings that appellant is in reg

that salaries paid to the individual appellees were fair and

reasonable, that beginning with the first of the year 1952

the obligations of KCIJ were current and liquid. As mat-

ters of law the court concluded that appellant was wholly

without equity, and judgment was entered denying appel-

lant any relief. The court determined that Kamin, Goldberg

and Coon were the beneficial owners of KCIJ, and, upon

approval of the Federal Communications Commission, it

should be transferred to the individual appellees or to their

nominee.

If there be an acceptance of the underlying finding of

fact that the beneficial ownership of station KCIJ was

vested in the individual appellees, Kamin, Goldberg and

Coon, then perhaps Rule 52, Fed. Rules Civ. Proc., would

require an affirmance. But we are convinced that the basic

finding was clearly erroneous. We find, on the part of the

individual appellees, a piercing of the corporate veil and

a disregarding of the corporate entity that can be sustained

only by an agreement of all of the stockholders. At the time

the appellant acquired his stock in Southland there was an

agreement that, if the Federal Communications Commis-

sion approved, station KCIJ would be transferred, not to

Kamin, Goldberg and Coon or their nominee, but to Fre-

quency, of which appellant’s wife was a stockholder, For

KCIJ, Southland was to receive one-third, or 500 shares,

of the stock of Frequency for distribution to the three indi-

33

vidual appellees. The September resolution, adopted by the

vote of the individual appellees, as majority stockholders

of Southland, recited that KCIJ needed additional capital

immeliately. It was resolved that the request for the trans-

fer be withdrawn and that appellant should pay $9,300 as

further consideration for his stock and lend the company

$4,000.

Appellant voted against the resolution. His acquiescence

in the resolution by the letter would have the same effect

as if he had voted for it unless, as he contended, his letter

acceptance was induced by duress. However, the appellant

did not vote for or acquiesce in the resolution thereafter

adopted that if appellant did not perform, station KCIJ

would be transferred to a corporation wholly owned by

Kamin, Goldberg and Coon.

At the time of the meeting in September, 1951, the appel-

lant was a stockholder of Southland and, although a minor-

ity stockholder he was the owner of more cf its shares than

any other stockholder. Station KCIJ was not the property

of the individual appellees. It was owned by and an asset

of Southland. It was subject to the agreement that it should

be transferred to Frequency if the required governmental

approval was given. There was no agreement, to which the

appellant gave assent, that in any event or upon any con-

dition should station KCIJ be the individual property of

Kamin, Goldberg and Coon, or of a corporation wholly

owned by them. The question has been raised as to whether

there is a consideration for the appellant’s agreement to

34

make the Joan and make a further payment for his stock.

There was not only the undertaking of the indivi ial appel-

lees to guarantee loans to be made by others to Southland,

but there was the action by them as direciors and stock-

holders to withdraw the application for approval of the

transfer of KCIJ to Frequency. We find a consideration

for the agreement and shall not inquire as to its adequacy,

It does not follow, however, that for a breach of the avree-

ment the appellant should be subjected to a penalty of the

forfeiture of his beneficial interest existing through his

stock ownership, of the most valuable asset of the company

of which he held thirty-nine per cent of the stock. It is

the law of Texas that:

“Forfeiture of rights or property by virtue of stipu-

lations in contracts is regarded as forfeitures vener-

ally are—that is, with disfavor. If the language of an

agreement is fairly susceptible of an interpretation

which will prevent a forfeiture, it will be so construed,

for in this case also a strict construction is favored.”

19 Tex. Jur. 803, Forfeitures $7.

Here, the appellant not only was not a party to any agree-

ment but if there was any agreement for a forfeiture,

it was between the individual appellees and Southland,

opposed by appellant, and which could not be effected

without his assent.

There is still another reason why the individual appel-

lees should not be permitted to divest Southland of station

KCIJ for their own exclusive benefit. In accord with

principles universally accepted, we find the law of Texas

35

on the dealings between a corporation and its directors to

be as follows:

“It has been said that no case can be found where

a director has been permitted to deal personally with

the corporation, or with his codirectors acting for it,

where his vote was necessary to the action taken. On

the other hand, there is authority to the effect that

such contracts, when made with the efficient aid of

the contracting director, are presumptively invalid,

that they are subjected to the severest scrutiny, and

set aside unless all appearance of bad faith is removed

by the evidence. Even where the disinterested directors

are a majority, and they vote the transaction, they

‘annot deal with the interested director as with a

stranger, because of his intimate knowledge of the

affairs of the corporation and his position to exercise

influence over those associated with him in its man-

agement. While the transaction, if otherwise unas-

sailable, is not void because interested directors con-

stituting a minority use their position for the pur-

pose of advancing their own interests, any want of

good faith, reflected in the unfairness of the trans-

action to the corporation, will render it voidable even

though sanctioned by a qualified majority of the di-

rectors.” 10 Tex. Jur. 959, Corporations, $306, Cf. 15

Am. Jur. 955, Corporations, $1002 et seq.

The foregoing rule has been well stated by the Texas

Court of Civil Appeals in saying:

“All authorities so far as we know denominate the

relation between a director of a corporation and the

corporation itself, which is treated as a separate

entity, a trust relation. In many of them, applving the

principles of equity, it is held that he cannot deal with

the corporation or other directors acting for it, when

personally concerned, whether beneficial to himself or

otherwise, on the broad ground that the corporation

is entitled to the disinterested management and judg-

36

ment of the director, and no rule will be permitted

that might be productive of contrary results. While

the rule has not been so broadly stated or applied in

this state, as may be seen from an interesting discus-

sion of the subject by Justice Williams of our Supreme =!

Court in the case of Tenison v, Patton, 95 Tex. 284,

67 S. W. 92, yet we know of no case where a director

has been permitted to deal with the corporation or his

co-directors in his personal interest, where his vote

Was necessary to the action taken. Thus in the case

cited (page 293 of 95 Tex., page 95 of 67 S. W.) it

is said: ‘The corporation is a separate entity, for

which its board of directors acts. The persons having

the beneficial interest in the property are the stock-

holders; but their rights are centered in the corpora-

tion, and are managed and controlled through the

board of directors as the active representatives of the

company, and it is through it, and not the stockhold-

ers, that business dealings are carried on. When a

personal interest of one of them springs up adverse

to that of the corporation, it disqualifies him to act

concerning it as one of the representatives or agents’.”

Greathouse v. Martin, 91 S. W. 385, aff. 100 Tex. 99,

94 S. W. 322.

Again it is said: )

“It is a wholesome and thoroughly settled rule that

a director of a private corporation cannot vote, with

propriety in a matter affecting his private interest,

any more than a judge can sit in his own case. * * *

And, when he violates this rule of propriety, and en-

ters into a contract with the corporation, especially a

contract of purchase of corporate assets, and his vote

as a member of the board is necessary to the passage

of the resolution authorizing it, the action of the board

is sometimes void, and in all cases voidable, at the

instance of the corporation, or of its stockholders. or

of its injured creditors.” Texas Auto Co, v. Arbetter,

1S. W. 2d 334,

37

Such being the rule, the three individual appellees, as

directors, could not take from the corporation one of its

principal assets and divert it to themselves in its entirety

merely because they were unable to get prompt approval

for the transfer to Frequency of which they were to own

but a third of the stock.

The individual appellees, as directors, with the concur-

rence of appellant as a director, cancelled all accrued com-

pensation to officers and directors in September, 1951, and

provided that none should be paid until the debts of South-

land became liquid and current. They dropped appellant

from the board in October, 1952, and forthwith voted them-

selves $7,200 each for compensation as members of the

Management Committee. These payments were for the

year 1952, a period of which nearly five-sixths had expired

when the resolution purporting to authorize it had passed.

For 1955 the $7,200 annual paymeiits to each were con-

tinued and for that year they voted each of themselves a

$4,800 bonus. There was no formal authorization by the

directors of the creation of a Management Committee. It

was merely the majority stockholders giving themselves

a name under which they would operate without their

minority stockholder. All of the individual appellees are

residents of Houston, Texas. The two radio stations are in

Louisiana. The President of Southland, Lester Kamin,

operates an advertising agency in Houston. The Secretary

and Treasurer, Billy B. Goldberg, maintains a law office

in that city. It appeared from the testimony of Mr. Gold-

berg, the only one of the individual appellees who testified,

ENE IE EER PRA IT eee

eS

ee Te ee

oT

38

that Kamin, Coon and himself had organized a corporation

which had applied for a television permit to operate with

the WMRY tower of Southland under an agreement which

they, as directors of the new corporation, would negotiate

with themselves as directors of Southland.

The trial court found that “In the light of the services

performed, the revenues obtained and the net profits made,

the salaries paid to the management committee were

entirely fair and reasonable and not excessive.” The first

compensation which the individual appellees took from the

corporate treasury as compensation for their services was

the $7,200 paid to each for 1952. These payments were for

a period retroactive to the beginning of the year. Such

payments have the disapproval of the Texas courts. The

Texas Court of Civil Appeals has held:

“An increase in salary, or additional compensation,

or back salary, or pay—a bonus—may not be voted

to a director or directing officer of a corporation,

when the vote of the beneficiary himself is necessary

to the adoption of the proposition.” A, J. Anderson Co.

v. Kinsolving, 262 S. W. 150.

This court has had occasion to declare the same doctrines

and has said:

“We need not write extensively on the legal princi-

ples governing the voting of bonuses, that is increased

compensation for services already rendered gratui-

tously or for a prescribed compensation, where there

is neither express or implied understanding that addi-

tional compensation may be granted. They are well

settled and well known. Under well established princi-

ples of corporation law, directors and officers are

quasi-trustees for the corporation and the stockhold-

39

ers, they hold office under an implied obligation to

serve them faithfully, they may take no personal ad-

vantage of their possession of power. As to bonuses,

which are merely gratuitous payments, and as to sim-

ilar retroactive increases of salary, it is Hornbook

law that, except where there has been an express or

implied understanding that they may be granted if

conditions warrant, there is no consideration for them,

and their grant by the directors alone will not sustain

them against attack by stockholders. It is true that

normally the stockholders may grant them or ratify

their granting. Even they may not do so, however, with

the purpose or the result of overreaching or working

a fraud or imposition on the corporation, the minority

stockholders or other unprotected interests. It is suf-

ficient for the purpose of this case to say: that gratui-

tous bonuses and additional compensation granted by

directors, for services already rendered under fixed

salaries are normally without consideration in law:

that they are, therefore, suspect and will be readily

upset unless their propriety is made clearly to appear,

that where, as was the case here, in respect of the

additional compensations awarded retroactively in

June, 1943, the fact that the directors who voted them

were also owners of all the common stock will not save

them from attack; and that they will be disallowed if

it is made to appear that either their purpose or their

result has been not to award reasonable compensation

for services, but to impose upon or overreach preferred

stockholders.” Hurt v. Cotton States Fertilizer Co.,

5th Cir. 1947, 159 F. 2d 52.

The amount of the payments made to the individual

appellees for that portion of the year 1952 pricr to October

25, 1952, should be restored to the corporation, The same

is true as to all other retroactive bonuses. The appe tee,

Billy B. Goldberg, outlined in some detail the activities of

himself and the other individual appellees during the time

eS a Le ee) Mo et Doe

oh alld

40

of the organization and promotion of Southland prior to

1952. There is much less information for the subsequent

period. It was his testimony there was a station manager

at both stations and the “management committee,” so

called, handled the “top management,” the “long-range

short range policy decisions” and was the “sole managing

entity within the corporation.” As a guide to our decision,

we again turn to the law of Texas as pronounced by its

courts. The Supreme Court of that State had occasion to

consider a case where a stockholder had brought suit on

behalf of a corporation against Martin, the corporate treas-

urer, whose salary was fixed by the treasurer’s vote as a

member of the board of directors. It was held:

“Where the proof showed that the action of the

board of directors was not binding on the corporation,

the plaintiff was entitled to recover from Martin the

money which had been paid to him under that invalid

order, unless Martin could show himself entitled to re-

tain it by reason of the fact that he had performed

valuable services for which he would be entitled to just

compensation.” Greathouse v. Martin, 109 Tex. 99,

94 S. W. 322.

The burden of proof was upon the individual appellees to

show that they were entitled, as on a quantum meruit,

to the compensation which they drew.

We think the individual appellees must make a full

accounting of all of the transactions of the corporation

made with them or for their benefit or with any corpora-

tion or other entity in which they had an interest. All such

transactions should be the subject of full disclosures and

41

careful scrutiny. Accountings should not be based upon

apparent inferences.

For further proceedings consistent with this opinion, the

judgment appealed from is

REVERSED AND REMANDED.

A True Copy:

Teste:

JOHN A. FEEHAN, JR.

Clerk of the United States Court

of Appeals for the Fifth Circuit

(SEAL)

43

APPENDIX B

JUDGMENT

Extract from the Minutes of March 20th, 1956

No. 15,536

Rex F. Topp,

Vv.

SOUTHLAND BROADCASTING COMPANY, LESTER KAMIN,

BILLY B. GOLDBERG and PAT COON

This cause came on to be heard on the transcript of the

record from the United States District Court for the South-

ern District of Texas, and was argued by counsel;

On consideration whereof, It is now here ordered and

adjudged by this Court that the judgment of the said Dis-

trict Court appealed from in this cause be, and the same is

hereby, reversed; and that this cause be, and it is hereby,

remanded to the said District Court for further proceed-

ings consistent with the opinion of this Court;

It is further ordered and adjudged that the appellees,

Southland Broadcasting Company, Lester Kamin, Billy B.

Goldberg and Pat Coon, be condemned, in solido, to pay the

costs of this cause in this Court for which execution may be

issued out of the said District Court.

* * * * on

a Step yase

| JOHN T. FEY, Cler!

IN THE

Supreme Court of the United States

October Term, 1956

No. 279

SOUTHLAND BROADCASTING COMPANY,

LesteR KAMIN, Bitty B. GOLDBERG,

AND Pat Coon,

Petitioners and Appellees below,

Vv.

Rex F. Topp,

Respondent and Appellant below.

On Petition for a Writ of Certiorari to the United

States Court of Appeals for the Fifth Circuit

BRIEF FOR RESPONDENT IN OPPOSITION

TO PETITION FOR WRIT OF CERTIORARI

Of Counsel: C. E. Bryson

11th Floor, Esperson Building

B. Jerr CRANE Houston, Texas

BEN H. Rice, III Counsel for Respondent

NO Se heer beblemeetin. seats

ALPHA Law Brier Co., 402 M & M Bipc., Houston 2

PET Pe Om TNE

SUBJECT INDEX

OPINIONS BELOW

JURISDICTION

QUESTIONS PRESENTED

STATEMENT OF THE CASE

SUMMARY OF THE ARGUMENT

ARGUMENT

I. Petitioners have not shown grounds which might

require the Court of Appeals to instruct the District

Court to reopen the evidence on any material question

decided by the Court of Appeals.

II. The evidence material to determination of the bene-

ficial ownership of Station KCIJ was fully developed,

and Petitioners have heretofore so treated it.

Hil. The Court of Appeals was clearly correct in hold-

ing that beneficial ownership of Station KCIJ was not

vested in the individual Petitioners.

REPLY TO PETITIONERS’ ARGUMENT

CONCLUSION

CERTIFICATE OF SERVICE

LIST OF AUTHORITIES

CASES

American Propeller & Mfg. Co. v. U. S., 300 U.S. 475, 81

L. Ed. 751 (1937)

Bowerman v. Hamner, 250 U.S. 504, 63 L. Ed. 1113 (1919)

Dunagan v. Bushey, 152 Tex. 630, 263 S.W. 2d 148 (1953)

Guth v. Loft, Ine., 5 Atl 2d 503 (Del. Sup., 1939)

McCormick v. King, et al., 241 Fed. 737 (9th Cir. 1917)

Milam v. Cooper Co., Inc., et al., 258 S.W. 2d 953 (Tex. Civ.

App., 1953, Writ of Error Ref., N.R.E.)

Seott v. Farmers & Merchants Natl. Bank, 97 Tex. 31, 75

S.W. 7 (1903)

FEDERAL RULES OF CIVIL. PROCEDURE

Rule 52a

PAGE

ono wns BD WW

10

13

17

27

28

PAGE

12

12

16

16

12

16

14

13,14

IN THE

Supreme Court of the United States

October Term, 1956

No. 279

SOUTHLAND BROADCASTING COMPANY,

LesteR KAMIN, Bitty B. GoLpBeErG,

AND Pat Coon,

Petitioners and Appellees below

v.

Rex F. Topp,

Respondent and Appellant below.

On Petition for a Writ of Certiorari to the United

States Court of Appeals for the Fifth Circuit

BRIEF FOR RESPONDENT IN OPPOSITION

To the Honorable Supreme Court of the United States:

In opposition to the Petition for Writ of Certiorari to

the United States Court of Appeals for the Fifth Circuit,

received on July 20, 1956, Rex F. Todd, Respondent herein

and Appellant below, would respectfully show the Court as

follows:

2

Opinions Below

The District Court filed Findings of Fact and Conclu-

sions of Law (R. 669-689), and rendered a final decree

(R. 689-691), but no opinion was published. The opinion

of the Court of Appeals is reported at 231 F. 2d 225.

Jurisdiction

The jurisdictional requisites are adequately set forth in

the Petition.

Questions Presented

1. Whether the individual Petitioners, who as the ofh-

cers, directors and controlling stockholders of the corporate

petitioner, were defendants in an action by the minority

stockholder on behalf of the corporation to permanently

enjoin the transfer to themselves of substantial assets stand-

ing in the name of the corporation, are entitled as a mat-

ter of due process of law to a de novo hearing before the

District Court after the Court of Appeals has reversed

the judgment of the District Court, denying Respondent

all relief and gianting afhrmative relief to Petitioners,

which judgment of the District Court was rendered upon

Petitioners’ motion made at the conclusion of Respond-

ent’s evidence; all proceedings having been before the Court

without a jury, and Petitioners not having identified or

otherwise made known to any court the nature or purport

of the evidence they might desire to offer, and having

treated the evidence as fully developed for the purpose of

their affirmative defenses and their cross-act‘on in both

the District Court and the Court of Appeals.

|

|

-

2. Whether the facts as shown by the record support the

individual Petitioners’ claim of beneficial ownership in them-

selves, as against Southland Broadcasting Company, of Sta-

tion KCI], its business and assets.

Statement of the Case

This is a shareholder’s action for an injunction and ac-

counting. Respondent was Plaintiff, Petitioners were De-

tendants.

Respondent is a citizen and resident of the State of

Louisiana. Petitioner Southland Broadcast.ng Company is

a private corporation organized under the laws of the State

of Texas. It owns and operates two radio stations located

in the State of Louisiana. Respondent owns 399 shares of

the stock of this company. The authorized capitalization is

1500 shares.

Petitioncrs Lester Kamin, Billy B. Goldberg, and Pat Coon

are the directors and officers of Southland Broadcasting

Company. They each own 308 shares of the stock. They

have voted together at all stockholders meetings and exer-

cise control of the corporate affairs. They are all citizens of

the State of Texas.

Petitioner Kamin operates the “Kamin Advertising

Agency” at Houston, Texas. Petitioner Goldberg is an at-

torney at law at Houston, Texas. Petitioner Coon is an at-

torney at law at Dallas, Texas. He has signed Petitioner’s

Application as a member of the bar of this Honorable Court.

The controversy is of some years’ standing. It came to a

head in February, 1953, when the individual Petitioners

adopted a stockholders’ resolution, over Respondent’s pro-

test, to transfer the assets comprising Radio Station KCIJ

4

out of Southland Broadcasting Company to a new corpora-

tion wholly owed by the individual Petitioners. (R. 138-

140).

Respondent filed a verified complaint on March 16, 1953,

sceking to enjoin such transfer, and also seeking an ac-

counting and restoration to the corporation of any funds

shown to be due to the corporation from the individual

Petitioners. (R. 4, 8-9).

Petitioners’ Answer asserts that the individual Petitioners

are the beneficial owners of Radio Station KCIJ as against

both Respondent and Southland Broadcasting Company.

(R. 17). Petitioners pleaded the facts on which they based

their claim of ownership, and prayed for affirmative relief

in the form of a declaratory judgment “establishing their

equitable and beneficial ownership of Station KCIJ, Shreve-

port, Louisiana”, and authorizing them to transfer such

station to themselves. (R. 41-42).

The trial was to the Court without a jury. It began

October 12, 1954, and continued more than two days.

Much evidence was offered by Respondent, including the

testimony of Petitioner Goldberg; the testimony of the

corporation’s bookkeeper, an employee of Petitioner Ka-

min; and the corporate records.

At the conclusion of Respondent’s evidence, Petitioners

made an oral motion for judgment. (R. 662). The Court,

after receiving briefs and suggested findings of fact and

conclusions of law, rendered judgment for Petitioners deny-

ing all relief sought by Respondent and granting the in-

dividual Petitioners’ prayer for judgment deciaring that

they were the beneficial owners of all of the assets com-

prising Station KCIJ. (R. 690-691).

Cake

co a

)

The Court of Appeals, upon consideration of the entire

record, held that Station KCIJ was the property of South-

land Broadcasting Company. Accordingly, the Court of

Appeals reversed the trial court judgment and remanded

the cause for further proceedings consistent with the opin-

ion of the Court of Appeals.

In their application to this Court, Petitioners attack the

judgment of the Court of Appeals on two grounds. They

say, first, that such Court should have ordered the trial

court to give Petitioners a de novo hear.ng on their claim

of ownership; and, second, that the Court of Appeals was

in error in concluding, on this record, that Station KCIJ

belongs to the corporation and not to the individual Peti-

tioners. It is Respondent’s position that the record demon-

strates that there is no material issue of fact with regard to

the ownership of Station KCIJ and that the Court of Ap-

peals was correct in its determination.

Petitioners’ Answer is quite lengthy. It does not dispute,

and Petitioners admitted at the trial, that legal title to the

assets comprising the disputed station stands in the name of

Southland Broadcasting Company. (R. 525-526). Petitioners

seek to derive equitable title to these assets by virtue of an

agreement between themselves, individually, and Respond-

ent at the time Respondent purchased his 399 shares of

stock from the corporation’s treasury in November, 1949.

This agreement, as stated by Petitioners, consists of:

(1) Respondents’ knowledge of a contract by which

it was contemplated that the permit to construct

Station KCI] would be transferred to Frequency

Broadcasting System in exchange for 500 shares

of Frequency stock; and,

6

(2) Respondent’s knowledge that this stock, when re-

ceived by Southland, would be transferred to Pe-

titioners individually; and,

(3) Respondent’s payment for his stock upon the

estimated value of Station WMRY. (Petition, 5).

It is Respondent’s position that his acquiescence in or

agreement to Petitioncr’s plan to benefit individually from

the transfer of the construction permit to Frequency could

not constitute a defense to this suit or support the afhrm-

ative relief sought by Petitioners.

The understanding was not that Petitioners would indi-

vidually own Station KCIJ, but that Frequency Broadcast-

ing System would own the station. Petitioners were to re-

ceive 500 shares of Frequency stock, one-third of its au-

thorized capital. (R. 71-72). Respondent’s wife owned

rights in Frequency. (R. 155-156).

The transfer of the permit to Frequency never did take

place. Petitioners caused Southland, over the protest and

dissenting vote of Respondent, to withdraw its application

to transfer the KCIJ permit. (R. 88-92). Consequently,

Southland did not receive the 500 shares of Frequency stock

which was the subject mattcr of Respondent’s agreement.

This action took place about two years after Respondent

purchased his Southland stock. Station KCIJ was no longer

a mere construction permit. Instead, the station had by

then been constructed and had commenced operations with

funds advanced by Frequency Broadcasting System and its

stockholders and by use of the credit of both Frequency

and Southland. (R. 72-73, 77-78, 446-502).

This action took place because it had become evident in

September, 1951, that the Federal Communications Com-

mission would not approve the transfer of the KCIJ per-

7

mit to Frequency. The stockholders of Southland were,

therefore, faced with the problem that Southland, and not

Frequency, would have to discharge the debts incurred for

the construction and operation of Station KCIJ. These

amounted to approximately $120,000.00. (R. 456). The

current liabilities of the station then exceeded its assets by

a consiGerable amount. (R. 333). Station KCIJ was being

operated at a loss. (R. 240).

Prior to such stockholders meeting of September 25, 1951,

Station KCI] had been managed by Frequency, and the indi-

vidual Petitioners had not contributed funds or credit to-

ward the financing of the station or the payment of its

operating losses. In order to obtain funds for Southland to

take over the station, the Petitioners agreed to personally en-

dorse Southland’s obligations in the sum of $13,300.00 if Re-

spondent would loan the sum of $4,000.00 to Southland

and would pay the sum of $9,300.00 into the treasury of

Southland if such amount were needed upon the granting

of a license to Southland to operate Station KCIJ. If such

sum of $9,300.00 were not needed by Southland, it was to

be deducted from Respondent’s dividends. (R. 93-123). In

November, 1951, Respondent agreed in writing to make

such loan and payment. (R. 122).

In late November, or early December, of 1951, Peti-

tioner Kamin asked Respondent if he was ready to put up

such sum of money, and Respondent told him “No”.

(R. 113). Petitioner Goldberg then advised Respondent

in writing that Respondent owned no interest in Station

KCIJ. (R. 116). Respondent thereupon employed his present

legal counsel. (R. 123).

Although Petitioners now assert that they, and not South-

land, own, and always have owned, the equitable title to

the KCIJ construction permit and, later, to the station, it-

8

self, they did not assume the payment of the obligations

attributable to Station KCIJ. Instead, Petitioners, as South-

land’s officers and directors, caused Southland to advance

its funds for the benefit of Station KCIJ. This practice

was begun about November, 1951, when the transfer appli-

cation was withdrawn, and it was continued at least through

the years 1952 and 1953. Southland’s books showed a

balance of $36,443.24 due the corporation on November,

1953, for advances to Station KCIJ. (R. 531-533; 261).

Despite the precarious financial condition of Southland;

despite the corporation’s by-laws, and the mutual agree-

ment of all stockholders in 1951; and despite the absence

of valid corporate action, the Petitioners have caused South-

land to pay to them, as salary and bonus for the years 1952

and 1953, sums totalling $57,600.00. (R. 440; 104-105;

135-136; 585; 142; 144; 586).

Respondent has received no salary, bonus or dividends from

Southland or any of its stations. (R. 137).

Summary of the Argument

The record, including the pleadings, evidence, and pro-

ceedings at the trial, supports the holding of the Court of

Appeals and shows that the case was fully developed as to

the material facts on the controlling issue and that there is

no substantial dispute of fact.

Argument

Petitioners argue that the Court of Appeals has denied

them due process of law because it has decided the case

on the basis of the record before it, and has reversed the

trial court judgment and remanded the cause for further

9

proceedings not inconsistent with its opinion. (Petit.on 8,

9). Petitioners base this claim on the fact that the trial

court judgment was rendered on Petitioners’ motion made

at the conclusion of Plaintiff’s evidence. (Petition 9). They

assert that they had no opportunity to put on their e\ idence

(Petition 9), and that the basic question of whether they

individually are the beneficial owners of Station KCIJ has

been determined against them by the Court of Appeals.

Petition 10).

I.

Petitioners have not shown grounds which might

require the Court of Appeals to instruct the District

Court to reopen the evidence on any material ques-

tion decided by the Court of Appeals.

Neither in their motion for rehearing to the Court of

Appeals, nor in their Petition in this Court, do Petitioners

state that at another hearing they would be able to produce

evidence which would contradict any part of the record

already made or which would add to such record anything

material not already covered thereby. There is no rule of

law or procedure that we know of that absolutely requires

an appellate court, upon revers.ng the District Court in

an equity case tried to the Court, to remand the cause with

instructions that the trial court upon a retrial is not “bound

by the holdings of the Court of Appeals as being the law

of the case”. (See Petition, bottom p. 13). Nor do we un-

derstand that the Court of Appeals is under a duty “to

instruct the trial court to hear defendant's evidence’.

(Petition 13). Instead, we think that if Petitioners have

available any material evidence which they did not offer,

and if they seek such instructions, the burden should be

on them to point out to the Court of Appeals the nature

10

of the additional evidence which they reasonably could ex-

pect to offer and that such evidence might change the re-

sult.

As is here.nafter pointed out in this argument, we think

that the facts material to a final determination of Peti-

tioners’ claim of beneficial ownership of Station KCI]

were fully developed in the hearing below, and that the

Court of Appeals was clearly correct in its holdings on the

merits.

II.

The evidence material to determination of the

beneficial ownership of Station KCIJ was fully de-

veloped, and Petitioners have heretofore so treated it.

This is not the case of a dismissal under Rule 41(b) for

failure of the plaintiff to show a right to relief. In this

case, the District Court rendered a judgment for Petitioners

and against Respondent on the ground that Respondent’s

prima facie right to relief had been overcome by Petitioners’

affirmative defense, as shown by the undisputed evidence.

Respondent’s prima facie right to relief was shown by Peti-

tioners’ admission that legal title to Station KCIJ was in

Southland and that they intended to transfer such station

to themselves. Respondent’s evidence also revealed the trans-

actions which Petitioners alleged vested beneficial owner-

ship of Station KCIJ in themselves as against the corpora-

tion (R. 21-41).

At the conclusion of the evidence offered by Respondent,

Petitioners evidently thought that the facts pertinent to

their affirmative defense and to their cross-action for a de-

claratory judgment had becn fully developed, for they

moved for a judgment (R. 662-663). This was not a mere

Ll

procedural gambit. Instead, it was the final move which

Petitioners had planned before the trial commenced. They

took the position before the trial that there was no dispute

as to the facts and that the Respondent’s testimony would

put him out of Court. (R. 45).

In moving for judgment at this stage of the proceedings

and under the circumstances of this case, Petitioners nec¢s-

sarily took the position that the facts established by Re-

spondent’s evidence with regard to the ownership of KCIJ

were the same facts which Petitioners expected to offer in

support of their affirmative defense and cross-action.

There was no dispute as to these facts, and they are

fully developed. As the District Court stated in the Find-

ings of Fact and Conclusions of Law (R. 669):

“The background facts, and for that matter,

the ultimate facts, are largely if not entirely un-

disputed.”

In Petitioners’ brief in the Court of Appeals, they ad-

opted the Findings of Fact of the trial court as their state-

ment of the case. (Appellees’ brief p. 4). Such brief

throughout treats the facts as having been fully developed

so far as their claim of beneficial ownership of Station KCIJ

is concerned.

As already pointed out, in their Motion for Rehearing

to the Court of Appeals, Petitioners did not represent that

they would, at another hearing, be able to offer evidence

that would contradict or add to the evidence on this issue.

Whatever might be the appropriate rule in some other

case, we do not think it was requisite, under the record in

this case, for the Court of Appeals to give any further

instructions to the District Court as to the proceedings

upon remand.

12

It has not been the practice of this Honorable Court to

remand a case upon the mere chance that a party may be

zble to furnish evidence which it failed to furnish ata)

previous trial, And this is particularly true when the evi-

dence would be material only to a claim which the Court

finds to be inequitable. American Propeller & Mfg. Co. v.

U. S., 300 U.S. 475, 81 L. Ed. 751 (1937).

And this Court has also held that a case will not be re-

manded for the introduction of the evidence which a party

failed to introduce because of his misconception of the

nature of the issues formed by the pleadings. In Bowerman

v. Hamner, 250 U.S. 504, 63 L. Ed. 1113 (1919), this

Court held that a suit in which one of the defendants

against whom a bill had been dismissed by tke Trial Court,

and who had not introduced evidence in his defense be-

cause of his erroneous construction of the cause of action

asserted against him, was not entitled to have the case

remanded to the Trial Court upon the issue of his liability,

vel non, and affirmed the judgment of the Court of Ap-

peals which directed the Trial Court only to ascertain the

amount of the judgment to be entered against him. Se

McCormick v. King, ct al., 241 Fed. 737 (Ninth Cir. 1917),

at page 746. In this connection the Court said:

“At his peril the appellant put the construction on

the pleading which, for the reasons stated in this

opinion, was erroneous. The suit was in equity, and

he was charged with notice that the decision of the

Trial Court was subject to review on both the law and

the facts; and, although he was present in court dur-

ing the trial, he neither took the stand to testify in

his own behalf nor offered any evidence upon the

question of his liability.” (250 U.S. at 514).

13

In this cause there is neither an assertion that these peti-

tioners failed to offer any evidence because of any mis-

conception of the issues involved, nor is there even an a:-

sertion that petitioners can or will offer any other or addi-

tional evidence.

III.

The Court of Appeals was clearly correct in hold-

ing that beneficial ownership of Station KCIJ was not

vested in the individual Petitioners.

Petitioners argue that the Court of Appeals erred in hold-

ing that they were not beneficial owners of Station KCI].

At page 15 of their Petition to this Court, they argue in

effect that the evidence was sufficient to establish their

affirmative defense and their right to a declaratory judg-

ment.

In determining the merits of Petitioners’ argument, it

should be remembered that the testimony was without

substantial dispute. Therefore, it could not be said that the

trial court possessed any advantage in appraising the signifi-

cance of conflicting testimony. It should also be remembered

that this was an action in equity and, of course, was tried

without a jury. As we understand the rule, the Court of

Appeals in such cases has the right to review the whole record.

For the above reasons, the authorities cited by Petitioners

at pages 14 and 15 are not, we believe, in point.

Further, it could not, we believe, be said that the finding

of beneficial ownership in Petitioners to the disputed sta-

tion is a finding of fact within the meaning of Rule 52a

of the Federal Rules of Civil Procedure. Instead, it is the

ultimate conclusion to be drawn from the undisputed facts

14

and, as such, is a conclusion of law or a mixed conclusion

of law and fact. The Court of Appeals, we are certain, js

presumed to be at least as competent to draw this ultimate

conclusion as the District Court. We do not believe that

it was the purpose of Rule 52a to circumscribe the power

of the Court of Appeals to draw from facts established

without dispute the ultimate conclusion in. this or any

other case.

It is admitted and undisputed that the individual peti-

tioners were the officers, directors and controlling stockholders

at all times material to this action except during that period

of time when Respondent was also an officer and director,

although obviously an ineffective minority. Petitioners’ claims

to the beneficial ownership of Station KCIJ are based en-

tirely upon their actions as such officers, Board of Directors

and controlling stockholders. These actions of Petitioners in

their official capacity, as officers, directors and majority

stockholders, must be examined in the light of the rules

laid down by our Courts to define the duties, rights and

liabilities of persons in that position.

One of the leading Texas cases in this field is Scott v.

Farmers & Merchants Natl. Bank, 97 Tex. 31, 75 S.W. 7

(1903). In that case one J. W. Hobson was president and di-

rector of Waco Electric Railway & Light Company and the

owner of almost all stock in the company. In consideration of

their contract by which the Railway Company had agreed

to run its line over certain property, the owners of that

property donated four blocks of lots to the corporation,

but the deed to these lots was made to Hobson. The track

built in compliance with the contract was financed by

money advanced or loaned by Hobson to the Railway Com-

pany. Hobson was not being paid any remuneration for

)

his services to the corporation. This contract was made with

the consent of the directors. Hobson attempted to bolster

his claim to the title of the four lots by approving a con-

tract to finance the building of the railway. By this con-

tract Hobson was to furnish the money for the building

of the railway and the light plant and was to manage the

construction without charge for his time. The bounties

(including the four blocks of lots in question) acquired

by the company as an inducement for the building of the

railway were to be conveyed to either Hobson or the other

party to the contract for the use of the company. The

other party to the contract failed to pay to the corporation

the entire amount which he had agreed to pay and was sub-

sequently released by Hobson from his contract.

The Supreme Court of Texas held that the lots taken

by Hobson in his name were held for the benefit of the

corporation. The contract for the financing of the railway

was held to be immaterial to the right of Hobson to hold

these lots for his own benefit. The Court remarked that

under the contract for the financing of the land it was

very clear that Hobson could not have claimed the land

as his own, and while he attempted to show that the con-

tract was changed by a subsequent agreement between him-

self and the other contracting party, it was not shown that

the change was made before the land was conveyed to him.

The Court further remarked:

“But leaving that contract wholly out of view, we fail

to see how, under the facts of this case, Hobson could

claim the property as his own, in the absence of some

corporate action on the part of the company which

authorized him to take a conveyance of the property

for his own use. If, without salary or other compen-

sation, he rendered services in the advancement of the

enterprise, and if he furnished his own money to con-

16

struct the road, this may have entitled him to compen-

sation by the company, but it did not entitle him to take

and hold the property of the corporation as his own,

unless authorized to do so by the corporation itself. We,

therefore, conclude that when the four blocks of lots

were conveyed by the University Land Investment

Company to Hobson, he held them in trust for the

Electric Company.” (75 $.W. at 13).

Similar holdings are found in Milam v. Cooper Co., Inc.,

ef al., 258 SW. 2d 953 (Tex. Civ. App., 1953, Writ of

Error Ref., N.R.E.) and Dunagan v. Bushey, 152 Tex. 630,

263 S.W. 2d 148 (1953).

Had these Petitioners taken title to the assets compris-

ing Radio Station KCIJ in their own names (disregarding

for a moment that such action would have been prevented

by the Federal Communications Commission), we believe

that the Court would have decreed that such assets were held

by Petitioners for the benefit of Southland Broadcasting

Company and would have ordered that they be restored to

the Company or that Petitioners account to Southland for

the benefits received by them through such transaction.

Guth v. Loft, Inc., 5 Atl 2d 503 (Del. Sup., 1939). We

believe that the Court in the Guth case correctly stated the

applicable rule, which is also the rule in Texas, when it said:

“Corporate officers and directors are not permitted

to use their position of trust and confidence to further

their private interests. While technically not trustees,

they stand in a fiduciary relation to the corporation

and its stockholders. A public policy, existing through

the years, and derived from a profound knowledge

of human characteristics and motives, has established

a rule that demands of a corporate officer or director,

peremptorily and inexorably, the most scrupulous ob-

servance of his duty, not only affirmatively to protect

the interests of the corporation committed to his charge,

17

but also to refrain from doing anything that would

work injury to the corporation, or to deprive it of

profit or advantage which his skill and ability might

properly bring to it, or to enable it to make in the rea-

sonable and lawful exercise of its powers. The rule that

requires an undivided and unselfish loyalty to the cor-

ands that there shall be no conflict be-

d self-interest. The occasions for the de-

termination of honesty, good faith and loyal conduct

are many and varied, and no hard and fast rule can

be formulated. The standard of loyalty is measured

by no fixed scale.

“If an officer or director of a corporation, in viola-

tion of his duty as such, acquires gain or advantage for

himself, the law charges the interest so acquired with

a trust for the benefit of the corporation, at its elec-

tion, while it denies to the betrayer all benefit and profit.

The rule, inveterate and uncompromising in its rigidity,

does not rest upon the narrow ground of injury or

damage to the corporation resulting from a betrayal of

confidence, but upon a broader foundation of a wise

public policy that, for the purpose of removing all

temptation, extinguishes all possibility of profit flowing

from a breach of the confidence imposed by the

fiduciary relation. Given the relation between the

parties, a certain result follows; and a constructive trust

is the remedial device through which precedence of

self is compelled to give way to the stern demands of

loyalty.” (5 A. 2d at 510).

poration dem

tween duty an

Reply to Petiticners’ Argument

As support for their argument that the Court of Ap-

peals erred in its holding with regard to the beneficial

ownership of Station KCIJ, Petitioners set forth, at pages

15-17, six numbered paragraphs which they assert show

error on the part of the Court of Appeals. We will reply

in similar form:

s GMS HS PORTER BOGOR, TEE LE SOIL FONG MY CR ITN” PNY

18

1. The fact that the purchase price of Respondent's

stock was calculated on the basis of the value of Station

WMRY, alone, would not, contrary to Petitioners’ asser-

tion, give Respondent a windfall.

The reason, of course, that the purchase price of Re-

spondent’s stock in Southland was calculated on the basis

of the value of Station WMRY, alone, was that at the time

of such purchase, in November, 1949, Petitioners as well

as Respondent thought that Station KCIJ would be_bene-

ficially owned by Frequency Broadcasting System. Re:pond-

ent, through his wife, expected to be a shareholder in Fre-

quency.

Respondent did not expect that Southland would be

compelled by unexpected events to take over and discharge

the accrued construction and operating costs attributable

to Station KCI].

For the almost seven years since 1949, Respondent has}

received nothing from the $13,300.00 he invested in.South-

land. Instead the revenues received by Southland from the

operation of Station WMRY have been used for the benefit

of, ond to sustain, Station KCIJ, and in salaries and bonuses

to Petitioners, not for expansion of the assets of Station

WMRY or in dividends to Southland stockholders.

As soon as Station KCIJ began making money, Petitioners

began to withdraw funds from Southland in the form of

salaries and bonuses to themselves.

Although it was money borrowed on Southland’s notes

and money contributed by Southland which sustained KCI]

during the period when it could not sustain itself, and

although Petitioners have not invested any of zheir money

in Station KCIJ, they, nevertheless, claim to be the sole

beneficial owners of such station.

19

It is obvious, we think, that the windfall is being sought

by Petitioners and not by Respondent.

2. Respondent’s admission that he knew he was buying

an interest in WMRY, only, when he purchased Southland

stock in November, 1949, cannot be taken as an admission

that Southland was not the beneficial owner of Station

KCIJ.

The undisputed facts establish that none of the parties

in. 1ya9_anticipated that Southland would remain the owner

of the KCIJ construction permit or that Southland would

pay the costs of constructing and operating such station

and the wind up with full ownership of the complet«d

station. Yet, that is precisely what happened. Respondent's

expectations in November, 1949, could not be material or

~ controlling in view of the subsequent events which were

not within the contemplation of any of the parties.

3. Respondent does not dispute that he was told that

the 500 shares of Frequency stock which Southland ex-

pected to receive for transfer of the KCI] construction per-

mit was to be the property of the individual Pes itioners.

Since the contract upon which such claimed right was

based was subsequently caused to be abrogated by the indi-

vidual Petitioners, over Respondent’s protest, Respondent

does not believe that Petitioners are any longer entitled to

any rights or benefits which they might have expected to

receive under such abrogated contract.

PRIORY oie AF

fe

Further, it should be remembered that Respondent, him-

self, was interested that the contract not be abrogated. He

wanted Southland and its Station WMRY not to be obli-

gated for KCIJ’s debts, so that he could receive revenues

from WMRY. He also expected to benefit from Frequency’s

Borne ron an mesnonae seen

20

.

ownership of Station KCIJ if such venture turned out to

be profitable, while not jeopardizing his Southland invest-

ment if KCIJ were not profitable.

It would be inequitable in truth to allow Petitioners,

through their stock ownership in Southland, to derive bene-

fits from the situation as it developed as a result of the

abrogation of the contract and their use of Southland’s

funds and to add thereto the benefits which Petitioners

could no longer receive because of such abrogation.

4. The argument based on Respondent’s admission that

Southland was to end up with WMRY only has, we believe,

been fully covered by the above. With regard to the rights

of the individual parties based upon what they paid for

their stock, Respondent’s argument is not that he paid more

for his stock than did Petit.oners, but that it was his capital

that made it possible to construct WMRY, and that it was

the operation of WMRY that made it possible, two years

later, for Southland to take over Station KCI], pay its

current obligations, and operate it until it became a going

concern.

When, in November, 1949, Respondent paid Southland

$13,300.00 for his 399 shares of stock, Petitioner Goldberg

had paid in only $400.00 for his stock; Petitioner Kamin,

$750.00; and Petitioner Coon, nothing (R. 488-489).

Southland had no capital and could not construct either

station. Southland used the money paid in by Respondent

in the construction of Station WMRY. Only after such

station had gone into operation did Petitioners pay any ad-

ditional money into Southland’s capital account, such pay-

ment totalling $4,938.00 (R. 233). For such additional

payment, Petitioners received additional Southland stock

sufficient to give them control of the corporation (R. 523).

When, in September, 1951, it was anticipated that South-

21

land would need additional capital in order to take over the

operation of Station KCIJ, Petitioners did not offer to

contribute any additional capital but merely to endorse

Southland’s note for $13,300.00. They refused to permit

Respondent to do likewise.

Instead, they called upon Respondent to make an addi-

tional contribution to the capital and to make a loan di-

rectly to the corporation. When he subsequently refused

so to do, Petitioners informed Respondent that he owned

no interest in Station KCIJ. Despite such declaration, Peti-

tioners continued for two years thereafter to use South-

land’s funds and credit for the benefit of, and to support,

Station KCIJ. These acts, we believe, speak for themselves.

5. It is true that at the stockholders’ meeting of Septem-

ber 25, 1951, Respondent cid not verbally protest Peti-

tioners’ action in claiming that he had no interest in KCIJ

and in providing by resolution that Respondent would

make a contribution to Southland capital. Petitioners’ repre-

sentation as to the effect of the resolution is erroneous,

however. Such resolution does not recite that KCIJ was

not a Southland asset or that Respondent agreed to make

a contribution in consideration of Petitioners’ allowing

Southland to reacquire the beneficial title to KCIJ. In-

stead, such resolution recites:

“WHEREAS, if the FCC permits the withdrawal of

the application and grants KCI] its license, Southland

Broadcasting Company will remain the owner of two

stations. ...” (R. 93)

Such resolution further recites that the consideration for

Respondent’s agreement to make a contribution to capital

was the agreement of Petitioners to personally endorse a

corporate loan in the sum of $13,300.00. (R. 94). Respond-

TaN

CP AE ORT AS

BRsrerynncrrs gen rox,

22

ent voted against the resolution which provided that if he

declined to make such additional payment, the individual

Petitioners should transfer KCIJ to a new corporation

which they might organize. (R. 103).

We believe that the Court should further consider the

fact that two of the Petitioners who represented to Re-

spondent that he owned no interest in KCIJ were attorneys.

In view of their position as controlling stockholders and

their superior knowledge of the law, could Respondent

now be estopped to assert his rights?

Whatever might have been the right of Petitioners in

November, 1951, to assume the debts of Station KCIJ and

transfer it to themselves, KCIJ being then in straightened

circumstances and a burden to Southland, such right no

longer existed in February, 1953, when Petitioners voted

to make such transfer. Both KCIJ and Southland were then

solvent. Instead of having acted at the time when drastic

action might have been justified in an effort to save the

corporation from bankruptcy, Petitioners waited until after

KCIJ had been put on its feet and had become a valuable

asset of Southland before they attempted to transfer the

station to themselves. Whatever may be the powers of of-

ficers and directors of a corporation to take drastic action

in extreme circumstances, such power does not survive the

extremity. Therefore, no rights could exist in Petitioners to

make the transfer in 1953 by virtue of the resolutions

passed in September, 1951, when the circumstances had

materially changed and the conditions which alone might

justify such resolutions no longer existed.

6. The so-called “secret” feelings of Respondent in Sep-

tember, 1951, that, if the transfer of KCIJ to Frequency

did not go through, Southland would have to support KCIJ

were evidently also the feelings of Petitioners at such time

23

and for some years thereafter. The resolutions at the stock-

holders meeting of September 25, 1951, for which all Pcti-

tioners voted, recognized such fact.

Any breach by Respondent of his agreement to make a

loan to Southland and to contribute additional capital if

the same were needed in connection with KCIJ’s operations

would not justify Petitioners’ actions and claims. This they,

themselves, recognized when in December, 1951, they used

Southland’s funds for the support of KCIJ. As hereinbefore

stated, the practice of using Southland’s funds for such

purpose continued at least into February, 1953, the month

‘1 which Petitioners took corporate action to effect the

transfer of Station KCIJ to themselves. In such month,

Southland’s records showed an outstanding balance on the

‘ater-station account in favor of WMRY in the amount

of approximately $28,000.00. If Petitioners are now willing

to recognize that Station KCIJ ts properly an asset of

Southland, Respondent would truly have no justification

to complain of such advances. However, for Petitioners

to have extracted Southland’s money for the benefit of a

station to which they claim the sole beneficial interest and

at a time when it was doubtful whether such station would

become a paying asset is, we think, a plain breach of the

duties which Petitioners owed to Southland by virtue of

their positions as officers and directors of the company.

Contrary to Petitioners’ statement appearing at the bot-

tom of Page 17 of the Petition, Respondent does not claim

that the mere making of advances by Southland changed

the title to the assets of KCIJ. Respondent says, instead,

that after the contract with Frequency was abrogated,

Southland was the legal and equitable owner of Station KCI],

and that the advances should be conclusive of Petitioners’

recognition of this fact.

Qorerys

24

Nor does Respondent admit that the construction permit

was ever the property of the individual Petitioners. Under

the law, it could not have been, since it could not have

been transferred out of Southland without the approval

of the Federal Communications Commission. Nor was any

such transfer attempted. Instead, the only transfer of the

construction permit ever contemplated was the transfer to

Frequency, which, as the Court already knows, was with-

drawn after some two years and after Frequency had con-

structed the station and placed it in operation.

7. The foregoing likewise applies to the contention made

at Page 18 in numbered Paragraph 7. Respondent does not

contend that the construction permit should be treated sep-

arately from the physical assets connected with Station

KCIJ, nor does he admit that such construction permit was

ever owned by the individual Petitioners.

Petitioners’ argument, that the agreement between them-

selves and Respondent constituted Southland a trustee of

KCI] for the benefit of the individual Petitioners, is an

unusual application of the trust theory in this type of a

case. Not only does the record fail to substantiate Peti-

tioners’ assertion that the original understanding between

themselves and Respondent created such a trust; but the

only trust which could arise would be for the benefit of

Southland, not Petitioners, who were Southland’s officers

and directors.

Southland is therefore entitled to follow its funds through

these trustees into the assets which now comprise Station

KCIJ. Petitioners, as fiduciaries, could not be entitled to

derive any personal benefit from their administration of

this trust, nor could they claim any title adverse to South-

land.

25

g. In Paragraph 8, at Page 19, Petitioners state what

seems to us to be the boldest position we have ever seen in

a case of this nature. They admit that at the stockholders’

meeting in September, 1951, they, the controlling stock-

holders, told Respondent that they were going to obtain

credit for KCIJ’s operations through their personal guar-

natees. When Respondent, reasonably we think, suggested

that he be permitted to make his contribution in the same

manner, Petitioners did not agree. Instead, they told him

that he had no interest in KCIJ, and would have to first buy

an interest. It will be recalled that all the parties at such

meeting knew that Southland’s credit was committed on

the KCIJ debts and that these debts would have to be paid

in order to protect Respondent’s investment in Southland.

It will also be recalled that two of the Petitioners were at-

torneys. Petitioners representation to Respondent that

Southland owned no interest in KCIJ was not true then,

and is not true today.

It is against this background that the Court should con-

sder the written agreement of Respondent. Petitioners as-

sert that such agreement constitutes “a conclusive admission

that Respondent was agreeing to purchase something that

he did not then own.” We say that such written agreement

should not be so construed, and that if it was valid under

the circumstances, it created, at the most, a contract be-

tween Southland and Respondent to loan certain funds to

Southland and to make a contribution to the capital ac-

count “if needed”. If not needed, the sum was to be de-

ducted from Respondent’s dividends (R. 122). Certainly

such agreement did not constitute a transfer to Petitioners

of any rights of Respondent in Southland or in KCIJ, nor

was it so intended. If Petitioners then thought, as they now

assert, that Station KCIJ was not the property of South-

26

land, they certainly, in their subsequent conduct of the

affairs of Southland, abused their powers as the officers and

directors of Southland.

9. The threat of Petitioner Kamin that he would see

that Respondent “never got a dime out of it” docs not

require an explanation. Its meaning is clear in the light of

the subsequent actions of Petitioners. Respondent has never

received “a dime out of it,” whereas Petitioners have taken

for themselves at least $57,000.00 of the corporate funds

as salaries and bonuses although the stations were in fact

managed by employees, each of whom received a salary of

$1,000.00 a month, or more.

In answer to argument made at Page 21 of the Petition,

We reiterate that the record does not support Petitioners’

oft-repeated assertion that Respondent at any time had

agreed that KCIJ would be beneficially owned by the in-

dividual Petitioners. Nowhere in the Petition is a record

reference cited for this assertion. Such assertion is contrary

to all of the reasonable inferences from the undisputed facts

and is at variance with the testimony of both Respondent

and Petitioner Goldberg as to the nature of Respondent’s

agreement.

Nor is the result of the Court of Appeals’ opinion in-

equitable. Respondent does not thereby acquire an interest

in Station KCIJ for nothing. It is Southland that retains

Station KCIJ. This is equitable because the physical assets

were acquired in Southland’s name, and in part, at least,

on Southland’s credit, and it was Southland’s earnings which

paid for the station. Although Petitioners assert that

the entire value of the station was created by their

efforts and individual credit, the record, including the

27

references which they give, shows only that Petitioners

guaranteed certain loans for which Southland was the pri-

mary obligor. Respondent had offered to do the same, and

had been refused.

Conclusion

The foregoing brief in opposition is based upon what

Respondent believes are elementary rules of law governing

corporate affairs. We think that the undisputed facts re-

quire the result reached by the Court of Appeals and that

extensive citation of authority in support of the opinion

of the Court of Appeals is therefore unnecessary. We feel

that this Court will be convinced, upon consideration of

the facts, that the Court of Appeals was clearly correct in

its holdings and that Petitioners have not been deprived of

any rights.

It is, therefore, respectfully submitted that the Petition

for a Writ of Certiorari should be denied.

Respectfully submitted,

C. E. Bryson

Counsel for Respondent

Of Counsel:

B. Jerr CRANE

Ben H. Rice, III

August, 1956

28

Certificate of Service

I, C. E. BRYSON, one of the attorneys for Respondent

herein and a member of the Bar of the Supreme Court of

the United States, hereby certify that on the day

of August, 1956, I served a copy of the foregoing Brief for

Respondent in Opposition to Petition for Writ of Certiorari

on each adverse party, to-wit: Southland Broadcasting

Company, Lester Kamin, Billy B. Goldberg, and Pat Coon,

Petitioners, by depositing such brief in a United States mail

box, with first class postage prepaid, addressed to Pat Coon,

Counsel of Record for all Petitioners, at his postofhice ad-

dress, 1900 Adolphus Tower, Dallas, Texas.

C. E. Bryson

llth Floor, Esperson Building

Houston, Texas