Case ID: mont_47/html/0070-01.html
Source: Caselaw Access Project
Author: {"author": "MR. JUSTICE HOLLOWAY", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

BRANDT et al., Respondents, v. McINTOSH et al., Defendants; HULLER et al., Appellants.
    (No. 3,245.)
    (Submitted February 10, 1913.
    Decided February 21, 1913.)
    [130 Pac. 413.]
    
      Corporations — 'Actions by Minority Stockholders — Complaint-Injunctions Pendente Lite — Insufficiency—Conclusions—Duty of Stockholders Before Bringing Action.
    
    Injunctions Pendente Lite — Insufficiency of Complaint — Conclusions.
    1. The complaint in a suit to set aside a judgment and vaeate the sheriff’s sale had to satisfy it, whieh alleged that the claim forming the basis of the judgment was a “pretense and fraudulent,” and “in fraud of the rights” of plaintiffs, but did not set forth the faets upon whieh the charges of wrongdoing were grounded, was insufficient under section 6532, Revised Codes, and therefore did not justify the court in granting an injunction pendente lite against execution and delivery of the sheriff’s deed.
    Corporations — Action by Minority Stockholders — Nature of Action.
    2. A suit brought by seven stockholders for themselves and a large number of others, not named, similarly situated, to set aside a sheriff’s sale and enjoin the issuance of a deed thereunder, was one brought in behalf of the corporation, and not one to subserve the private, personal interests of plaintiffs.
    Samé — Duty of Stockholders Before Bringing Action — Complaint—Insufficiency.
    3. Before stockholders may have recourse to a court of equity for Te-dress of their grievances as to corporate affairs, they must first exhaust their remedy within the corporation itself; hence the complaint mentioned in paragraph 1 above, was further insufficient for failing to allege that plaintiffs were minority stockholders; that a demand had been made upon and refusal by the board of directors, or why a demand would have been useless.
    Same.
    4. An allegation of demand upon the president and secretary (directors) of a corporation for a redress of grievances of minority stockholders is insufficient in the absence of a statement showing the number eonstituting the board of directors.
    Same.
    5. The complaint referred to in the foregoing paragraphs was deficient, also, in that while alleging wrongdoing by the officers of the corporation in neglecting to effect a redemption of its property sold at the sheriff’s sale sought to be vacated, it omitted to aver that the officers had funds, or the means of obtaining them, with which to do so.
    
      Appeal from District Court, Missoula County; F. C. Webster, Judge.
    
    
      Action by Henry E. Brandt and others against Robert G. McIntosh and others. From an order granting an injunction pendente Uie, defendants Curtis, Huller and W. L. Kelley, sheriff, appeal.
    Reversed.
    
      Mr. Elmer E. Hershey, for Appellants, submitted a brief and argued the cause orally.
    In behalf of Respondents, there was a brief by Messrs. McChesney, Becker & Bradley, Messrs. Woody & Woody, and Mr. A. J. Violette, and oral argument by Mr. Frank Woody and Mr. Violette.
    
   MR. JUSTICE HOLLOWAY

delivered the opinion of the court.

This is an appeal from an order granting an injunction. The complaint alleges that in June, 1911, Curtis Huller commenced an action in the district court of Missoula county against the Amador Copper and Gold Mining and Milling Company, Limited, a corporation, to recover $5,822.44, alleged to be due him for work and labor performed for the corporation; that due service of summons was made; that on July 8, 1911, the default of the defendant corporation was entered, judgment recovered by default for the full amount demanded, and execution issued and placed in the hands of the sheriff of Missoula county for service. It is then alleged that in the proceedings leading up to the sheriff’s sale, and in the sale itself, such irregularities occurred, and these are pointed out, that a sheriff’s deed ought not to issue to the purchaser of the property at such sale. After a hearing the district court ordered an injunction to issue restraining the defendant sheriff from issuing the deed, and this appeal followed.

But for certain statements contained in the brief of respondents we would be uncertain as to the theory upon which plaintiffs proceeded, but we have the repeated assurance that the purpose of this suit is twofold: (1) To set aside the Huller judgment; and (2) to have vacated the pretended sheriff’s sale. As ancillary relief and for the purpose of maintaining the status quo, an injunction was demanded restraining the sheriff from executing or delivering a sheriff’s deed pending a final determination of the cause.

1. The only allegations to be found in the complaint which reflect in the least upon the character of Huller’s claim or his judgment are these: “That the claim of the said Curtis Huller is a pretense and a fraudulent claim, approved by the said Bobert G. McIntosh and the said George F. Stoney, together with other parties unknown to your orators, for the sole purpose of obtaining possession of the Amador mine and the other property mentioned in the said sheriff’s sale for themselves in fraud of your orators’ rights,” etc. And, again: “Your orators further allege that the entire suit brought in this court by Curtis Huller is a mere scheme and conspiracy on the part of the said Curtis Huller, Robert G. McIntosh, and George F. Stoney and others unknown to your orators to obtain possession of the said premises described in the said sheriff’s return in fraud of the rights of your orators,” etc. It will be observed at once that in neither of these excerpts is there a single fact stated. Each consists of a bald conclusion. Under our Code, the complaint must contain a statement of the facts constituting the cause of action. (Rev. Codes, sec. 6532.) There is not any contention that Huller did not render services to the corporation of the value of the amount claimed, or that such services were not necessary; indeed, there is not a suggestion of any fact which tends in the remotest degree to impeach the integrity of the judgment. The employment of such extravagant terms as “fraud,” “conspiracy,” and other words of like malign import, unaccompanied by a statement of fact upon which the charges of wrongdoing rest, is a useless waste of words. (20 Ency. of Pl. & Pr. 786.) The complaint fails altogether to state facts sufficient to constitute a cause of action for setting aside the Huller judgment.

2. Assuming that sufficient facts are stated to warrant the action of the trial court in granting an injunction pendente lite if the corporation whose property is alleged to be in jeopardy was plaintiff, we still have for consideration the question: Does thé complaint state a cause of action for an injunction in favor of these plaintiffs? The suit is brought by seven named stockholders of the Amador Copper and Gold Mining and Milling Company, Limited, for themselves and for 500 other stockholders in that company similarly situated. The purpose of having the sheriff’s sale set aside is to protect property owned by the corporation, and not to subserve any private, personal interests of plaintiffs, as distinguished from the rights common to all other stockholders of the company. An action of this character is one brought in behalf of the corporation itself. (McConnell v. Combination Mining & Milling Co., 30 Mont. 239, 104 Am. St. Rep. 703, 76 Pac. 194.) It is elementary that, before stockholders can go into a court, they must first exhaust their remedy within the corporation itself. If they hold a majority of the stock, they may control the election of the directors (Rev. Codes, sec. 3835), or, if they control two-thirds of the stock, they may remove an objectionable director (section 3838). Because of the power and authority thus lodged in the stockholders, courts of equity refuse to listen to their complaints, unless it appear that the situation of the parties is such that they cannot secure relief from the corporate authorities.

In the first place, this complaint does not even disclose that these named plaintiffs and those for whose benefit the suit was brought are minority stockholders. "We are not informed what amount of the stock these plaintiffs own or control, or what the authorized or issued stock of the corporation is. Therefore the plaintiffs do not show their inability to secure relief within the corporation itself, and for this reason fail to state a cause of action. But, even if they are minority stockholders, they still fail to state a cause of action. It is an elementary rule of law that, before minority stockholders can be heard to prosecute a suit founded on a right of action existing in the corporation itself, they must allege that a demand has been made upon the board of directors or other governing body of the corporation for relief from the grievances of which they complain or for action in conformity with their desires, and that such demand has been met by a refusal, or, in lieu of such demand and refusal, they must show such a state of facts as discloses that the demand, if made, would have been entirely unavailing. The complaint fails to disclose any demand whatever upon the board of directors to prosecute this suit or prevent the threatened injury to the corporation’s property. It is alleged, however, “that your orators have requested the said officers and directors to redeem said property from said liens and judgment and especially from the pretended sale to Curtis Huller, but that the said officers and directors have made no attempt ,to redeem said property and have refused and still refuse to do so,” but this reference is only to the defendants McIntosh and Stoney, president and secretary, respectively, of the defendant corporation, and each a director thereof. We are not informed of the number of directors constituting the board, and it is therefore impossible to say that the acts of the president and secretary are such that relief could not be had from the board itself, and certainly neglect or misconduct on the part of those two officers is not sufficient to relieve the plaintiffs from the necessity of applying to the board of directors for a redress of their grievances or for action in conformity to their wishes. The authorities in support of these propositions are so numerous that reference to the texts where they are cited will suffice. (10 Cyc. 967; 26 Am. & Eng. Ency. of Law, 2d ed., 976; 20 Ency. of Pl. & Pr. 778; 2 Cook on Stock and Stockholders, 3d ed., sec. 701.)

While it is alleged that the officers have refused to redeem the corporation’s property from the pretended sale under the Huller judgment, the complaint fails to allege that the officers or directors have any funds, or the means of obtaining funds, with which to effect such redemption.

The complaint contains the following paragraph: “That since the year 1907 the operation and control of said mine has been in the hands of a board of directors, most of whom were residents of the state of Idaho, and the property has been managed and controlled since that time by said board of directors for their own personal advantage and gain, and in such a manner that the directors or some of them may finally acquire the property herein described, to the great loss and detriment of your orators, and the stockholders represented by them.” Assuming, without deciding, that the words “said mine” refer to all the real property sold at the sheriff’s sale, the paragraph quoted is distinguished by the adroitness with which the pleader approaches facts, which might reflect adversely 'upon the conduct of the board of directors, without stating them. It will not do to say that the directors managed the property for their own personal gain. The facts must be stated upon which such a charge can rest.

Because the complaint does not state any cause of action in favor of these plaintiffs, the trial court erred in directing an injunction to issue, and the order is accordingly reversed.

Reversed.

Mr. Chief Justice Brantly and Mr. Justice Sanner concur.