Case Name: Robert E. Robinson, Respondent, v. New York, Westchester and Boston Railway Company and Others, Appellants, Impleaded with George B. McClellan, as Mayor of the City of New York, and Others, Defendants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1908-01-10
Citations: 123 A.D. 339
Docket Number: 
Parties: Robert E. Robinson, Respondent, v. New York, Westchester and Boston Railway Company and Others, Appellants, Impleaded with George B. McClellan, as Mayor of the City of New York, and Others, Defendants.
Judges: 
Reporter: Appellate Division Reports
Volume: 123
Pages: 339–358

Head Matter:
Robert E. Robinson, Respondent, v. New York, Westchester and Boston Railway Company and Others, Appellants, Impleaded with George B. McClellan, as Mayor of the City of New York, and Others, Defendants.
First Department,
January 10, 1908.
Railroad —power to enjoin sale of property — contract destructive of rights of minority stockholders—proposal to amend contract not considered on appeal.
A court of equity at the suit of a minority stockholder will interfere to enjoin a proposed action by the majority stockholders-when the same is so detrimental to the. interest of the corporation itself as to lead to the necessary inference that the interests of the majority of the shareholders lie wholly outside of and in opposition to the interest of the corporation and of a minority of the shareholders and its consummation would be a wanton or fraudulent destruction of the rights of the minority stockholders.
The W. railroad under a charter of questionable validity had expended $1,700,000 in constructing part of its'line and purchasing rights of way. It had entered into construction contracts, for which it had issued and delivered bonds of the par value of $15,000,000 and stock of the par value of $19,000,000. Said railroad purposed to enter into a contract with the P. railroad, in which the majority of its stockholders were interested, and which was chartered to construct., its line between the same points, the proposed agreement providing that the W. railroad should transfer all its tangible assets, together with the construction contracts, to-the P. railroad, which in return was to complete the construction, the road to be used in common, each sharing the expense of maintenance and administration.
Held, that the carrying out of the contract should be restrained "pending an action for injunction brought by minority stockholder's of the W. railroad.
Upon appeal from an order granting such injunction pemdenle Ute the Appellate Division will not vacate the injunction because of an offer to amend the pro- ' posed contract so as to make it more fair and reasonable; that matter should be considered at Special Term, where all parties can be heard and all relevant facts brought out.
Ingraham, J., and Patterson, P. J., dissented, with opinion.
Appeal by the defendants, the New York, Westchester and Boston Railway Co.mpany and others, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 3d day of September, 1907, continuing a temporary pendente lite.
Francis Lynde Stetson, for the appellants Perry, Thorne and Millbrook Company.
George S. Graham, for the appellants New York, Westchester and Boston Railway Company and others.
William C. Trull, for the appellant New York and Portchester Railroad Company.
Lewis L. Delafield [J. H. Caldwell and Robert R. Reed with him on the brief], for the respondent.

Opinion:
Scott, J.:
The purpose of the injunction now appealed from is to restrain until the trial of the action the execution of a proposed contract between the Rew York, Westchester and Boston Railway Company and the New York and Portchester Railroad Company, whereby the former company (hereinafter termed the Westchester Company) is to transfer to the latter company (hereinafter termed the Portchester Company) certain valuable properties, and is to consent to the relocating of a portion of the route of the Portchester Company, so- as to coincide with a portion of the route of the Westchester Company, upon the construction and acquisition of which the latter company lias expended nearly two million dollars. The defendant Millbrook Company, controlled and substantially owned by the defendants Thorne and Perry, owns all of the capital stock of the Portchester Company and a majority of the capital stock of the Westchester Company, the plaintiff being a minority stockholder of the latter company, but owning no interest in the Portchester Company. The plaintiff sues as well for himself as for other stockholders of the Westchester Company similarly situated. The gravamen of his complaint is that the proposed contract is opposed to the true interests of the Westchester Company, and is unjust, oppressive and unfair to its stockholders, or at least to such of them as are not stockholders in the Portchester Company. The conditions which must exist in order to justify the interposition of the court in a case of this nature have been well stated by JVIr. Justice Ingraham. I quite agree with him that the court should not interpose in a dispute between the majority and minority stockholders in relation to the ordinary control and management of its corporate affairs, or substitute its judgment as to the proper management and control of the corporation for that of the directors elected by and representing the majority stockholders. It is the duty of the court, however, to interfere, if called upon, when the proposed action of the majority is so detrimental to the interests of the corporation itself as to lead to the necessary inference that the interests of the majority of .the shareholders lie wholly outside of, -and in opposition to, the interests of the corporation and of a minority of the shareholders, and its consummation would be a wanton or fraudulent destruction of the rights of the minority stockholders. (Gamble v. Queens County Water Co., 123 N. Y. 91.) If the agreement proposed to be executed between the Westchester Company and the Portchester Company is of the character above described, the temporary injunction was rightly granted and should be continued.
To determine whether the proposed agreement is of such a character it is necessary to briefly consider the relative situation of the two companies, the terms of' the proposed agreement, and the consideration to be given to the Westchester Company. That company holds a charter, the validity of which has been questioned, although it has never been authoritatively adjudged invalid, and even if defective or doubtful does not appear to be necessarily beyond legislative cure. We do not consider that we should, upon such ah appeal as this, undertake to pass- upon the validity of the charter, joro or con, merely recognizing, as one of the important facts in the case, that a question as to such validity has been raised and remains undetermined.
The charter of the Portchester Company appears to be free from any cloud of doubt as to. its validity. It is not unnatural or unreasonable that those who control both companies and own all the stock of one, and a majority of the stock of the other, and who contemplate building only one road, should desire to so merge the interests -of. the two companies as to build under the unimpeached charter, and at the same time to'reap the benefit of what has already been done by-the company whose charter rights rest under a cloud, and if this is fairly done, with due regard to the rights and interests of all parties concerned, it would- be difficult to find legal -objection thereto. The Portchester Company has thus far expended no money, and done no work towards the construction of the road. The Westchester Company has expended upwards of $1,700,000 in constructing a part of its line within the city of New York, and acquiring,by purchase rights of way. It has entered into a contract for' the construction of its road, for which it. has issued and delivered bonds of the par. value of $15,000,000 and stock of the par value, of $19,000,000. This contract, in turn, is secured by an underwriting syndicate, the participants in which have agreed to take the bonds and a portion of the stock, and in consideration thereof to provide the necessary funds for the construction and completion of the road between. One Hundred and Seventy-seventh street in the city of New York and the village of Portchester. The proposed. agreement, the execution of which it is now sought to enjoin contemplates that the route of the Portchester Company shall, by appropriate action of the board of estimate and apportionment, be so altered as to coincide between One Hundred and Seventy-seventh street and the city line with the route already laid out and appropriated to the Westchester Company, that being the portion of its route upon which that company has expended the amount of money already referred to; that the Westchester Company shall assign to the Portchester Company all of its right, title and interest in the contract for the construction of its road so far as concerns the portion of its line south of the city •line, and also all of its construction Work, rails, tools, engines, bridges, tunnels and other property which it now owns or to which it may hereafter become entitled under said contract in and along the portion of its line above mentioned and that portion of its branch line from Gildersleeve avenue to Barrett's creek, and also to make good and sufficient deeds to the Portchester Company of any and all real estate owned by it along its line between said points, as well as any and all contracts for the construction of such portions of its railroad. In other words, the Westchester Company is to turn over to the Portchester Company, not only a vital and essential section of its route, but also tangible property which has cost it nearly $2,000,000, and a construction contract in consideration of which it has issued and delivered nearly its whole authorized issue of bonds and a large proportion of its authorized issue of stock. It would, therefore, stand, upon the consummation of the agreement effectually denuded of everything of value which it now possesses, except a charter of questioned validity. In return the Portchester Company agrees to complete the construction of so much of the lines as shall, after the relocation of its route, be common to both companies, and it is said that to so complete the construction of the road over the coincident route will cost about $5,000,000. Although it is not so.stated in express terms it may be assumed that this work is to be completed under the contract to be assigned by the Westchester Company to the Portchester Company, and which is backed by the syndicate agreement secured by the securities issued by the Westchester Company. The consideration to be given to the Westchester Company for thus parting with all of its property and contract and property rights is that when the line is completed over the coincident portions of the routes' " each of the said roads shall have equal right to operate frains over and upon the said line of road upon a schedule to be hereafter .mutually agreed Upon," all expenses-of maintaining said common line and of the administration thereof to be borne equally by the two companies. It is argued with great insistence that this agreement is eminently fair' inasmuch as the Westchester Company is to be admitted to an equal partnership in the usé of a section of the line upon which it will have expended, only $1,700,000, while the Portchester Company .will have expended .some $5,000,000. .
It appears to us that this argument is fallacious, and that the proposed consideration to be given to the. Westchester Company is ehtirely illusory and unsubstantial. It is 'quite apparent that the Westchester Company can derive no benefit from the privilege to use the coincident portion of the route unless and until it shall be able to complete its whole - route. One of; the reasons given by defendants for wishing to make the proposed agreement is that the territory to he served will not support or justify the building of two roads, and that fact, taken with the other fact that the Westchester Company has issued' nearly, all of its authorized bonds and stock- as' consideration for the contract it is about to assign, renders it perfectly clear that if the proposed agreement is consummated the. completion of its road by the Westchester Company will be indefi- - ' nitely and probably permanently postponed. Hence' the net result of the proposed agreement would be that in return for this assignment of all its property, representing at least a cash outlay of $1,700,000, the Westchester-Company is to receive only a privilege of which it can never avail itself. Two facts appear to me to stand out as established beyond contradiction : First, that the proposed contract, if carried out, will effectually prevent the Westchester Company from carrying out the purposes of its incorporation, and, ' second, that in any aspect of the case' the Wéstchester Company is .to part with property representing an expenditure of $1,700,000, for which no substantial consideration is to be given.' Even' if the charter of the Westchester Company should, hereafter be held to be , invalid, so that it could not proceed with the'construction of its road, it would not thereby forfeit the tangible property which it had already acquired, and for which it had expended-its money. I-cannot see how it can be said that such a- contract, is not detrimental to and destructive of the rights of the Westchester Company itself; ' and unjust, oppressive and unfair to those stockholders of the Westchester Company who are not also stockholders in the Portchester Company.
The counsel for the appellants, apparently recognizing the very obvious inadequacy and unfairness to the Westchester Company of the agreement as now proposed, offered in the court below, and renewed the offer upon the argument in this court, to stipulate that the proposed contract should be so amended, by an order to be entered herein, as to provide as an alternative to the right of equal use-a provision that the Westchester Company should receive one-lialf of the net profits derived from the use .of the common route, after' deducting certain expenses and charges, or at its option, should receive a sum in cash equal to one-half of the equity of the Westchester Company in the common line.
I do not consider that Upon an appeal from an order granting an injunction penden te lite, in so complicated a case as the present, this court should undertake to make a contract for the parties, or attempt to say what modification of the contract now proposed would be fair and reasonable. If that is to be done by the court at all, it should be at Special Term, where all parties can be heard and all relevant facts laid before the court. Nor do I think that the temporary injunction should be dissolved, and the parties left free to carry out -the proposed contract in reliance upon the power - and authority of the court upon the trial to compel its modification. All we have to deal with at the present is the contract as now proposed, and if we find it to be unfair, unjust and unreasonable, as I believe it to be, we should not hesitate to prevent its consummation until the cause can be brought to trial. If it then appears that the defendants propose and are willing to enter into a fair, just and reasonable contract, the court will be able to mould its decree according to the facts as they then appear. So far as the order appealed from restrains the board of estimate and apportionment, that board , has not appealed and is not aggrieved by the injunction. It is unnecessary to consider how far it would have the right, without the consent of the Westchester Company, to consent to the occupation by another of the route already assigned to'it, for there is no reason to suppose that it would take such action while the West- ' Chester Company was enjoined from' giving such consent. As the case presents itself to me great wrong and harm may be done to the minority stockholders of the Westchester Company if the proposed agreement is permitted to be consummated before the trial of the action, while little or no harm can result to the defendants if the • 4 injunction be continued until a trial can be had. At the most théy will be subjected to only a slight .delay in carrying out their plans for a consolidation of interests, and perhaps to adopt a fair and' just plan in place of one that now appears to be unfair and unjust.
' The order appealed from should be affirmed, with ten. dollars costs and disbursements.
Laughlin, and Clarke, JJ., concurred; Patterson, P. J., and Ingraham, J., dissented.