Case ID: abb-pr-ns_4/html/0378-01.html
Source: Caselaw Access Project
Author: {"author": "Cardozo, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

FISK against THE CHICAGO, ROCK ISLAND, AND PACIFIC RAILROAD COMPANY. '
    
      Supreme Court, First District; Special Term,
    April, 1868.
    Jurisdiction.—Foreign Corporations.—Conflict of Laws.
    The supreme court of' this State has jurisdiction of an action brought by a citizen of this State against a foreign corporation in which the plaintiff is a stockholder, to restrain illegal acts of the directors, when they are personally within the jurisdiction of the court.
    The acts, ultra vires, of a foreign corporation, which is a creature of the laws of two different States, are not made valid by a confirmatory statute enacted by the legislature in one only of such States.
    
    An injunction against the directors of a corporation, who are charged with ' issuing illegal stock in excess of the actual capital, should not extend beyond the transaction in question, and enjoin dealings in the genuine stock, unless special necessity for such interference be shown.
    Motions for receiver ; and counter-motions to dissolve injunctions.
    Four actions were brought against the Chicago, Rock Island & Pacific Railroad Company, and others ; one by James Fisk, Jr., and others ; the second, by Hatch; the third, by Fanshawe; and the fourth, by Belden.
    The plaintiffs in these several cases sued as holders of original shares of the stock of the Chicago, Rock Island & Pacific Railroad Company, a corporation created by the States of Illinois and Iowa. The complaints alleged that a new issue of 49,000 shares of stock was illegal and void, and demanded injunctions against the use of the proceeds of that issue, and the appointment of a receiver of such proceeds.
    Motions were madé "by the plaintiffs for the appoinment of such receiver; and motions were made "by the defendants to dissolve the pending injunctions against the use of the proceeds. All the motions came on to "be heard together.
    
      D. D. Field, J. E. Burrill, and J. K. Porter, for the plaintiffs.
    
      C. Tracy, W. Fullerton, A. J. Vanderpoel, and J. N. Whiting, for the defendants.
    
      
       Compare O’Brien v. The same defendants, post, 381.
    
   Cardozo, J.

I shall not follow the counsel over the extended field of discussion in which they indulged on the argument of the motion in these cases. The statement of a very few plain and well-recognized propositions is all that is necessary to dispose of the question really involved. My views may be briefly expressed, as follows :

1. Even if my reflection and examination led me to a different opinion, which they do not, I should not feel at Liberty to deny the existence of the jurisdiction which it is sought to have the court entertain in these actions, since the point has been fully and distinctly decided by the general term of this court in Griffiths v. Scott, cited in the argument. My views accord with that decision, but, in any event, I should consider myself bound to follow it. In that case Judge Ingraham said: “I think there can be no doubt but that a citizen of this State can maintain an action against a foreign corporation for any cause connected with the recovery of or protection to his property or rights in said corporation. Judge Leonard, in the same case, held that this court “has not the power to remove or appoint the trustees or directors of a foreign corporation, but it can enjoin them action when illegal, or when acting fraudulently or unlawfully, E they are personally within our jurisdiction.” These remarks are apposite to the present suits, and dispose of the points as to jurisdiction raised by the defendant’s counsel.

2. The issue of the 49,000 shares complained of was ultra vires. Neither the corporation .nor its directors had, in any view, the right to make certificates purporting to represent capital stock, which had not in fact been subscribed and paid for, and to put them on the market as stock and sell them below par. if they might do so, and sell them at a discount of 1 or 2 per cent., they might sell them at 50 per cent., or any greater discount. It is not a question of good faith, or of honest intention, or of wise policy, or skillful or discreet management upon the part of the directors; it is a question of power. Every paper issued purporting to represent stock which had in fact no existence, was a false certificate; and the directors were not authorized to make false certificates. No such power attaches to their office, and the stockholders have the right to complain that they have assumed a power which was not conferred upon them. These views are controlling of the case, and are so familiar that they do not require the citation of authorities to support them.

3. The statute passed by the legislature of Iowa (Laws of Iowa, 1868, ch. 13) cannot alone ratify the act of the directors. The State of Iowa has not exclusive jurisdiction over this corporation. The certificates do not purport to represent stock in the original corporation created by the State of Iowa, but assume to represent stock of the consolidated company consisting of that corporation and the one formed under the laws of Illinois. The latter State, therefore, has quite as much control of the present matter as the State of Iowa. Certainly the act of either alone will not aid the defendants.

4. I see no reason why any injunction should have issued to restrain the defendants, except so far as the 49,000 illegal certificates are concerned. The transfer of the illegal issue was properly enjoined, and the proceeds should be held by the court to protect the company against damages in favor of the holders of the false certificates, or to enable it to retire them ; but nothing is disclosed in the papers which satisfies me that it is either proper or necessary to prevent dealings in the genuine stock or to interfere with the business of the corporation, except to the extent I have mentioned.

5. Respecting the motions to attach the defendants, I have only to remark that I do not think that any breach of the injunction has been established by the affidavits submitted to me, calling for any present action.

6. I shall appoint Hugh Smith, Esq. (the deputy city chamberlain), receiver of the proceeds of the 49,000 illegal shares, requiring from him a bond with surety, to be approved in $500,000, and directing that each half million of dollars which shall come to his hands as such receiver, shall be deposited alternately in the United States Trust Company, and in the Union Trust Company.

7. The costs of these motions will be costs in the actions, and abide the event of the same.

8. An order in accordance with these views, and containing such provisions as "may be deemed necessary to carry them into effect, will be prepared by the plaintiffs’ attorneys and presented to me for settlement.

Ordered accordingly.