POOL v. POOL, ET. AL.

AUTHOR: Castro
[22 So. 2d 131, 1945] NOTES:
This is an action to recover the amount paid by Robert Pool,
TOPIC: Duties of Directors and Controlling Stockholders as a stockholder, for federal surtax assessed against the
PONENTE: OTT, Judge. corporation.

Plaintiff – Robert Pool

Defendants – Stephen Pool, Mrs. Farrell, and Mrs. D’Aquin

FACTS:

 S. D. Pool Realty Company was a holding corporation consisting of Robert Pool, Stephen Pool, Mrs. Farrell, Mrs.
D’Aquin, and Mrs. Jarreau (siblings-stockholders), each owning 20 percent of the stock of the Company.

 The charter of the corporation provides that there must be an election of a board of three directors in January of
each year. At the stockholder’s meeting in January 1938, wherein all the stockholders were present, all five of the
stockholders were elected as directors. Robert was elected as the secretary while Stephen was elected as Vice-
President. After the meeting, friction arose among the stockholders, particularly between Robert and Stephen.

 The domicile of the corporation was fixed in the charter at 2341, Esplanade Avenue, New Orleans. In 1938,
Robert, as secretary, wrote to Times Picayune Publishing Company and requested that it send all future dividends,
reports, notices, etc. to him at Ventress, Louisiana. Stephen, as vice-president, also wrote to Times Picayune
asking it to ignore the request of Robert as his action was not authorized by the board of directors, and requested
that all communications to the company be sent to the address of its domicile.

 As a result, the attorneys for the Times Picayune, to whom the matter had been referred, wrote that in view of the
dispute between Robert and Stephen, the Times Picayune was advised to hold the check representing the dividend
payable July 1st and not to deliver it until the matter had been settled between the parties or by judgment of court.

 Under these circumstances, no dividend checks were received and distributed by the Pool Company during the
year 1938.

 In 1939, the corporation was assessed with and required to pay a surtax in the amount of $4200 for its
undistributed profits under the Revenue Act of 1938.

 The assessment was made against the stockholders of after the liquidation of the corporation, and Robert, as
stockholder, was forced to pay his pro rata part of the tax.

 Now, Robert seeks to recover the amount he paid from the three defendants.

Trial Court: dismissed the complaint

Robert’s allegation: The defendants’ negligence, ineptness and deceit, caused the assessment of the surtax against the
corporation. According to him, the company received the 1938 dividends in January 1939 and the directors had until
March 1939 to distribute those to avoid surtax.

Defendants’ allegation: Robert’s actions as secretary caused the Times Picayune to withhold the dividends in 1938.

ISSUE:
Whether the defendants as directors failed to act with diligence and therefore liable to Robert for the amount he paid as a
stockholder

HELD: No. The defendants as directors exercised diligence and acted in good faith.

RATIO:
The defendants as directors were only required to exercise reasonable care and diligence and act in good faith and
with that judgment and discretion which ordinarily prudent men exercise under similar circumstances. They
employed a certified public accountant to make the income tax returns of the Company for 1938 and also had the advice of
an attorney in connection with its legal affairs. The defendants did not know that these dividends had to be distributed
before March 15, 1939 (if this could have been done), in order to avoid the surtax.They had a right to rely on the advice
and suggestion of the public accountant and the attorney whom they had employed to look after these legal and technical
matters.

It was the dispute among the directors and stockholders of S.D. Pool Realty Company that caused the dividends to be
withheld by the Times Picayune Publishing Company. The directors have the duty to see that the dividends due the
Company were received and distributed. As Robert was a director and secretary of the company in 1938, it was also his
duty. However, he made no effort to have the controversy settled, and so far as the record shows, he was as much the cause
of the unhappy condition in the company as was any of the other stockholders.

While the plaintiff claims that he knew that these dividends had to be distributed before March 15, 1939, in order to avoid
the surtax, he admits that he never advised any of the defendants of this fact, notwithstanding he was a stockholder and had
as much at stake as any of the defendants. It was to the interest of all the stockholders to avoid paying this surtax, and it is
hardly conceivable that the defendants would have refused to distribute these dividends had they been advised or had
known that a failure to do so would subject them as well as plaintiff to this loss.

The Court does not deem it necessary to pass on the doubtful question of whether or not, under the above Section of the
Revenue Act of 1938, the Pool Company could have distributed the dividends received from the Times Picayune at any
time before March 15, 1939, and avoided the surtax assessment.

CASE LAW/ DOCTRINE:

The defendants as directors were only required to exercise reasonable care and diligence and act in good faith and with that
judgment and discretion which ordinarily prudent men exercise under similar circumstances.