receiver

In May 1919 defendant Stoneham, owner of 1,306 shares constituting a majority of the stock of National Exhibition Company, sold seventy shares each to plaintiff McQuade and defendant McGraw. McQuade paid Stoneham $50,338.10 for his shares. As part of the transaction the three men executed a written agreement dated May 21, 1919, under which they promised to use their best efforts to keep Stoneham as president, McGraw as vice-president, and McQuade as treasurer and director, with specified salaries, and to make no changes in salaries, capital, bylaws, or corporate policy without unanimous consent. The agreement was to remain in force so long as the parties continued to own their respective blocks of stock. Pursuant to the agreement Stoneham became president, McGraw vice-president, and McQuade treasurer of the corporation. In June 1925 McQuade’s salary was raised to $10,000 a year. The board of directors consisted of seven members; Stoneham selected the four outside directors and controlled their votes. On May 2, 1928, Stoneham and McGraw refrained from voting while McQuade voted for himself and the four outside directors elected Leo J. Bondy to replace him as treasurer. At the next stockholders’ meeting McQuade was also dropped as a director. McQuade and Stoneham had quarreled repeatedly. The trial court found that these disputes did not impair the orderly administration of the corporation’s business and that McQuade was removed solely because he had antagonized Stoneham by challenging his control over the corporate treasury. McQuade had been a city magistrate when the 1919 agreement was signed; he resigned that position on December 8, 1930, after this action was commenced. McQuade brought suit seeking specific performance of the agreement to restore him as treasurer and director. The trial court denied reinstatement but awarded damages for wrongful discharge measured at the treasurer’s salary rate of $10,000 per year from May 2, 1928, through the date of the decree, with leave to sue for future damages. The courts below affirmed the damages award. The Court of Appeals granted review and reversed the judgments below.

The Louisville and Nashville Railroad Company operated as a common carrier engaged in the transportation of passengers and property by steam railroad between the states of Kentucky, Ohio, Indiana, and Tennessee. William Adair acted as master mechanic and agent for the railroad company in the Eastern District of Kentucky. O.B. Coppage worked as a locomotive fireman in train service for the railroad and belonged to the Order of Locomotive Firemen. On or before October 15, 1906, Adair discharged Coppage from his employment with the railroad. The United States obtained an indictment against Adair in the District Court of the United States for the Eastern District of Kentucky. The first count of the indictment alleged that Adair unlawfully and unjustly discriminated against Coppage by discharging him because of his membership in the labor organization. The second count charged that Adair threatened Coppage with loss of employment because of the same membership. Adair demurred to the indictment on the ground that it was insufficient in law. The district court overruled the demurrer after concluding that the tenth section of the Act of June 1, 1898, was constitutional. Following a trial on a plea of not guilty, the jury returned a verdict of guilty on the first count alone. The court then entered a judgment requiring Adair to pay a fine of one hundred dollars to the United States. The case came before the Supreme Court of the United States after Adair challenged the validity of his conviction under the federal statute.

Pritchard & Baird Intermediaries Corp., a reinsurance broker, was incorporated in New York in 1959 with five directors including Charles Pritchard Sr., his wife Lillian Pritchard, their sons Charles Jr. and William, and George Baird and his wife Marjorie. The corporation issued 200 shares, with Charles Sr. holding 120. In 1964, the Bairds resigned and sold their stock, leaving the Pritchards as the only directors of the close family corporation. Upon Charles Sr.'s death in December 1973, Lillian Pritchard inherited 72 shares, becoming the largest shareholder with 48 percent of the stock. The corporation commingled premiums, commissions, and loss payments from clients in a single account rather than segregating them as was customary in the reinsurance industry. Beginning in 1970, Charles Jr. and William began withdrawing substantial sums identified on the books as shareholders' loans, which grew from approximately $438,000 in 1970 to more than $12.3 million by the time of bankruptcy in October 1975. These withdrawals exceeded corporate revenues in later years. The annual financial statements showed corresponding increases in working capital deficits, rising from $389,022 in 1970 to $10,176,419 in 1975. No corporate resolutions authorized the loans, no notes evidenced the debts, and no interest was paid or repayments made. Lillian Pritchard took no active role in the corporation's affairs. She visited the Morristown offices only once and never read or obtained the annual financial statements, which were delivered only to Charles Jr. upon his instructions. After her husband's death, she was bedridden for six months, became listless, and drank heavily. The trial court found her competent and that her lack of knowledge resulted from her failure to make any effort to discharge her responsibilities as a director. An involuntary petition in bankruptcy was filed against Pritchard & Baird in December 1975. The trustees in bankruptcy brought suit against the estate of Lillian Pritchard, among others. The trial court entered judgment against her estate for $10,355,736.91 plus interest based on negligence in permitting the payments to her sons. The Appellate Division affirmed the judgment, though on the theory of conversion of trust funds. The Supreme Court of New Jersey granted certification limited to the issue of Lillian Pritchard's liability as a director.