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HILL v. BELLEVUE GARDENS

December 1, 1960

Francis W. HILL, Jr., et al., Plaintiffs,
v.
BELLEVUE GARDENS, INC., et al., Defendants. Francis W. HILL, Jr., Plaintiff, v. BELLEVUE GARDENS, II, INC., et al., Defendants (two cases)



The opinion of the court was delivered by: MATTHEWS

The Court, having considered the evidence in these consolidated actions, hereby makes and enters the following

Findings of Fact

 1. In 1942, a partnership composed of Edgar S. Kennedy (now deceased), the defendant Donal L. Chamberlin and the defendant Ellen F. Chamberlin (wife of Donal L. Chamberlin) acquired a thirty-one acre tract of land in southwest Washington commonly called the Didlake property for the purpose of constructing an apartment development thereon. Kennedy had a one-half interest and Mr. and Mrs. Chamberlin together had a one-half interest. In that year and in 1943 the partners conveyed separate portions of that property to two corporations which they had formed, known as Bellevue Gardens, Inc. (hereafter called Bellevue I) and Bellevue Gardens II, Inc. (hereafter called Bellevue II). They then had these two corporations build large garden type apartment projects on these properties, with the aid of F.H.A. financing.

 2. Kennedy and Chamberlin caused Bellevue II, in 1943 to issue 100 shares of common stock, divided as follows: (a) to Kennedy, 49 shares; (b) to Chamberlin and his wife, 49 shares; and (c) to the defendant J. Howard Hixson, a long-time employee of various Kennedy and/or Chamberlin corporations and/or trusts, 2 shares. There have been no changes in the ownership of this stock since its original issuance, except that the Kennedy stock passed to his estate on Kennedy's death in 1953. All of the stock of this corporation was validly issued; and plaintiff's claim that Hixson holds his 2 shares as trustee has not been substantiated. The Court finds that Hixson is the beneficial as well as the legal owner of 2 shares of stock in Bellevue II.

 3. Kennedy and Chamberlin caused Bellevue I, in 1943, to issue 2,617 shares of common stock, divided as follows: (a) to Donal L. Chamberlin and his wife, 1197 shares; (b) to Edgar S. Kennedy and members of his family, including Mary K. Nelms, and Rachel Sisson, 1037 shares; (c) to A. P. Gaynor, 40 shares, to J. Howard Hixson, 171 shares, A. H. Sonnemann, 122 shares, and H. G. Free, 50 shares. At the time of the institution of these actions the 2,617 outstanding shares of stock of Bellevue I was divided as follows: (a) 1,479 shares were owned by the defendants Chamberlin and wife, Hixson, Farnham as trustee, and Free as trustee and individually (20 of these shares being in inter vivos trusts created by Chamberlin and his wife); and (b) 1,138 shares were owned by the several plaintiffs.

 4. After the Bellevue I and Bellevue II apartment projects were constructed, Kennedy and Chamberlin, as partners, caused these corporations to make contracts with them whereby (a) the Kennedy-Chamberlin partnership would act as 'rental agent' in the management of the apartment projects for seven years and receive a 5% Commission on all rents; and (b) the partnership would install furniture in some sixty apartments, and would receive all of the rental from such furniture. Under these arrangements the partnership assumed the salary of the resident manager of the apartment project and her assistant.

 5. The Kennedy and Chamberlin partnership thereupon proceeded to buy furniture for the apartment project on a small down payment, installed the furniture in the apartments, received the rentals therefrom, and paid for the furniture itself largely out of such rentals.

 6. In 1944 Kennedy and Chamberlin formed a corporation under the name of the defendant Kennedy-Chamberlin, Inc., with a capital stock of 100 shares equally divided between the two partners. Kennedy and Chamberlin, the partnership, conveyed to Kennedy-Chamberlin, Inc., the corporation, legal title to the remaining land in the Didlake tract, and assigned to Kennedy-Chamberlin, Inc. the so-called 'management' and 'furniture' contracts.

 7. Despite the execution by Bellevue II of the original management contract, Kennedy-Chamberlin, Inc. did not realize any rental commissions under it. However, Kennedy-Chamberlin, Inc. did receive 5% Rental commissions under the original contract with Bellevue I, until its expiration in 1950, and thereafter continued to receive the commissions on a monthly basis.

 8. Kennedy-Chamberlin, Inc., built four stores on a portion of the Didlake tract, fronting on Nichols Avenue, and rented these stores.

 9. In 1953 Kennedy-Chamberlin, Inc., sold another portion of the Didlake tract to Chamberlin inter vivos trusts, which had been created by Donal Chamberlin and his wife for the benefit of his children and Mrs. Farnham. This property in turn was conveyed to two new corporations known as Bellevue Gardens III, Inc. (Bellevue III) and Bellevue Gardens IV, Inc. (Bellevue IV) and received in exchange all of the capital stock of these two corporations. Bellevue III and Bellevue IV thereupon constructed apartment projects on said properties similar to, but somewhat smaller in size then those of Bellevue I and Bellevue II.

 10. Edgar S. Kennedy died on August 21, 1953, and the plaintiff Francis W. Hill, Jr. and the defendant Hixson were appointed and qualified as executors under his last will and codicil, which were duly probated in this Court. Hill is still acting as executor, but Hixson resigned, at the request of the beneficiaries under the will, on July 9, 1956.

 11. Upon Kennedy's death his estate became the owner of a one-half interest in Kennedy-Chamberlin, Inc. (50 shares); 49 out of 100 shares of Bellevue II; and 708 out of 2617 shares of Bellevue I, The estate subsequently acquired 24 additional shares in Bellevue I. 427 shares in Bellevue I are owned by the remaining plaintiffs in this suit.

 12. The defendants, Harold G. Free, Ruth H. Farnham and J. Howard Hixson, had been employed in the various Kennedy-Chamberlin enterprises for many years prior to Kennedy's death. Mrs. Farnham was also Mr. Chamberlin's personal secretary. At all times after Kennedy's death the stock owned by them in Bellevue I, together with that owned by Donal L. Chamberlin and his wife, constituted a majority of the outstanding stock of Bellevue I; and Hixson's stock, together with the stock owned by Donal L. Chamberlin and his wife in Bellevue II, constituted a majority of the outstanding stock of Bellevue II. Since Kennedy's death the defendants Ellen F. Chamberlin, Free, Farnham and Hixson have been under the domination of Donal L. Chamberlin in matters affecting Bellevue I and Bellevue II.

 13. After Kennedy's death, Chamberlin, with the collaboration of his wife, and of Hixson, Free and Farnham, having control of the majority stock likewise obtained complete control of the directorates of all of the corporations above mentioned. Since the middle of 1954 Donal Chamberlin, Free and Farnham, together with either Hixson or Ellen Chamberlin (or both), have constituted a majority of the boards of directors of Bellevue I, Bellevue II, Bellevue III, Bellevue IV, Kennedy-Chamberlin, Inc. and another corporation hereafter referred to, known as Kennedy Chamberlin Development Co. of Maryland. In abuse of their trust as directors, said defendants have used this control, through the means of the interlocking directorates referred to, so as to wrongfully oppress the estate of Edgar S. Kennedy and the other plaintiffs as minority stockholders of Bellevue I and Bellevue II, in the manner hereafter set forth.

 14. During Kennedy's lifetime, in 1949, Kenwood Golf and Country Club became obligated to Bellevue I and II in the amounts of $ 70,000 and $ 35,000 respectively. This Club is a private corporation, organized for profit, and at that time a majority of its stock was owned in an inter vivos trust which had been created by Kennedy. Neither Bellevue I nor II, at any time, owned any stock in Kenwood Golf and Country Club.

 15. On March 28, 1954 (after Kennedy's death), Chamberlin arranged to acquire majority ownership of the stock of Kenwood Golf and Country Club by having that Club purchase that portion of its own stock which had been previously owned by the inter vivos trust which Kennedy had created. In order to accomplish this, Chamberlin, on March 30, 1954, for his own benefit and for the benefit of Kenwood Golf and Country Club and not for the benefit of Bellevue I, caused the Board of Directors of Bellevue I (composed of himself, Hixson and Free) to adopt a resolution extending the aforementioned $ 70,000 loan from Bellevue I to Kenwood Golf and Country Club for a period of seventeen years, with interest at the rate of 4%. ...


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