St. Paul daily globe., 1893-02-19
Brown Loses His Fight
Against the Duluth, Mis-
sabe & Northern.
Judge Nelson Rules He Is
Not in a Position to De-
manQ Redress.
Brown Got His Stock. From
the Foley Crowd and
Must Be Content.
Foley and Guthridge in Such
Shape That They Can
Say Nothing.

1.-THE maxim in pori delicto applies
and a court of equity will not aid him, .
is the way Judge r. r. Nelson sums W
in refusing to grant William l.. Brown
of Chicago, an injunction against the
directors of the Duluth, Mesaba &
Northern Railway company to restrain
them from selling stocks and bonds.
The decision in this case was filed in
the United States circuit court yester-
day, and is an exhaustive exposition OF
the reasoning against granting the in
junction as asked. The court says:
Foley Brothers & Guthrie participated
in the benefits Of this alleged fraudulent
scheme and they would not be per
mitted to complain of it. Brown, the
defendant, as their transferee, is in nc
better situation than they are. lie has
no greater rights than had his trans
fereeS as regards remedy to lnyalldate
the transaction. He cannot bring suit
in behalf of other stockholders against
the corporation or other parties partlei-
pating in the issue, as his own title is
tainted with the same fraud.
The object Of the Injunction
was to prevent the sale of $4,000, 900 in
stock and $500. .000in bonds of the Duluth,
Mesaba q Northern Railway company
below par to Z. Z. Wetmore, of New
York, who represents the interests OF
the ROckefellers and the Duluth K
Iron Range road. 1t was also sought tC
prevent the issuing of bonus stock and
to require certain directors to surrender
S611, coo OF alleged bonus stock to be can
ceIled.
1t was charged in the bill of complaint
that the railway company and its di-
rectors consplred with Donald Grant
and Alberst S. Chare to issue large
amount of paid-up stock without re-
ceiving any consideration therefor, and
let contract to build part of the road
at greater amount than 1t would cost,
and then to have the construction COM
pany return stock to directors. The
charge is made that this was scheme
devised to evade the statues of the
state of Minnesota, enacted to prevent
"Watered stock" from being issued and
imposed on the market.
Judge Nelson says it is not necessary
to inquire as to the truth of the charge
made as to partnership construction
company with view to enrich the di-
rect0rs. The complainant, as assignee
of the stocks of Foley Bros. & Guthrie,
is not in a situation to bring such ac-
tion, because the Foley Bros. & Guthrie
were made up of portion of the con-
StructiOn company, with Donald Grant
and others. They received part of the
block of stock, alleged to be fraudu-
lently issued, and transferred it to
Brown.
On the matter Of the sale Of bonds
and stock, the court says the contract
provided that s., 10000 OF a new issue
of first mortgage bonds were to be
Sold at SO Per Cent
of the par value, and there was to be
delivered to the purchaser simutane-
ouSly stock OF the company equal to 3331s
per cent of the bonds, or to the value OF
S666, 666.66. The company was to re-
ceive 81, 10000 cash for the above-men-
toned stock and bonds, and the cash
was to be used in building another
section of road for legitimate cor
pOrate purposes. The opinion of the
court is that this contract to sell stock
and bonds is not forbidden by the stat
ute, and the allegations of threatened
wrongful acts are not sufficient, as al
legged in the amended bill, to make ii
illegal. However, if it should be con-
ceded that the contract is one which
ought not to be sanctioned by court OF
equity, the second question must first
be determined, namely, the right of MIR.
Brown to bring this stockholders suit.
The stock purchased by him has not been
transferred on the corporation books,
and the title between him and the cor
poration is not perfect, Notwithstanding
the fact that his title is good as against
the assignees. Foley Bros. 81 Guthrie.
He may bring suit under certain cir
cumstances to protect his interests.
But, not being recognized by the cor
pOration as stockholder, lie is person
ally precluded from maintaining this ac-
tion on behalf of himself and other
stockholders, and has no standing III
legged in the amended bill. The motion
for an Injunction is denied, and the re.
straining order formerly made is dis
charged.
The Railroad Side.
H. G. Stone, one of the attorneys in
the case, made the following statement
last evening:
"When the road was built, a little
over 0n6-half OF tne StOch was turned
over to the Merretts. The balance was
turned over to the people with whom
Mr.. Brown was interested. Arrange
ments were then made with Eastern
capitalists to raise the sum of $l,000,0O(
for the completion of the road. They
were to receive stock and bonds in pay
ment for the cash.
The Iron Range road people did not
desire competition, therefore they in
stituted the suits in the name of Brown
with the object of keeping the Merritt;
from voting their stock at the annua
meeting and giving the men who were
interested with Brown the opportunity
of getting control OF the roaC
by voting in their officers. Blu
the members Of the Eastern syn
dicate bought up enough stock to de
feat this plan and they kept control o.
the road. 1t cost them S500.000 to ge
the proper amount Of stock. The whole
plan was to get the road out of the
possession of the Merritts and keep i
from being built. so that the Iron Rangt
road could keep the business"