Court Opinion

ID: 8806706
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:50:01.21262+00
Date Added: 2024-06-11T17:04:07.788181
License: Public Domain

MAYER, District Judge
(after stating the facts as above). 1. As-it is not alleged that either Hepburn or Hine was a subscriber, the bill must be.dismissed as to each of them individually.
[1] 2. It is clear that, while the relief sought is a money judgment, the bill is for a discovery. The distinction between law and equity is substantial, and not technical, as urged by plaintiff (Judicial Code, § 267; Comp. St. 1916, § '1244), although mere matters of procedure are now regulated with desirable elasticity (Act March 3, 1915, 38 Stat. 956). , In the United States courts, examinations before trial, in actions at law, are unknown, and hence litigants on the law side cannot avail of the system in that regard, familiar to the New York courts. A defendant, of course, is entitled to a jury trial, if the action is at law, and hence the insistence that a cause is not one of equity, but of law, involves substantial rights.
[2] The complaint, as here framed (disregarding, for the moment,, the Maine statute), falls within the principle stated by Judge Rogers in Church v. Swetland, 233 Fed. 891, at page 896, 147 C. C. A. 565, at page 570:
“Where, in a bill for discovery and relief, the discovery sought is incident to the relief sought, a demurrer well taken to the relief is held to hold good-as to the discovery also. In McClanahan v. Davis, 8 How. 170, 183, 12 L. Ed. 1033 (1850), Mr. Justice Nelson, speaking for the court, said: ‘The complainant having, in our judgment, failed to set forth any foundation for relief, the right to the discovery, which is claimed as incidental, of course fails with it.’ ”
See, also, Curriden v. Middleton, 232 U. S. 633, 34 Sup. Ct. 458, 58 L. Ed. 765.
[3] 3. The fact thaf the Maine statute authorizes a suit by way of bill in equity does not confer jurisdiction upon this court to entertain such a bill. This precise question was considered in Alderson v. Dole, 74 Fed. 29, 20 C. C. A. 280,1 the court observing :
“Independently of the statutes of Maine, there could be no jurisdiction in equity. Those statutes cannot affect the jurisdiction of the federal courts in that particular.”
See, also, Van Norden v. Morton, 99 U. S. 378, 25 L. Ed. 453; Wehrman v. Conklin, 155 U. S. 327, 15 Sup. Ct. 129, 39 L. Ed. 167; Mathews Slate Co. v. Mathews (C. C.) 148 Fed. 490; Street on Federal Equity Practice, § 23; Simkins’ Treatise on a Federal Equity Suit (3d Ed.) p. 17.
[4] 4. As stated in Signor Tie Co. v. Monett & S. W. Const. Co. (D. C.) 198 Fed. 412:
“The law has been well settled by a long line of decisions of the Supreme Court of the United States and the national courts generally, where there are a number of creditors, that a single creditor cannot maintain a bill in equity against the stockholders of an insolvent corporation, having no corporate assets, to collect unpaid subscriptions from the stockholders, and thus *601enable Mm to secure payment of bis own debt to tbe exclusion of tbe other ■creditors.”
See, also, Pollard v. Bailey, 87 U. S. (20 Wall.) 520, 22 L. Ed. 376; Gillin v. Sawyer, 93 Me. 151, 44 Atl. 677; Middletown Bank v. Railway Co., 197 U. S. 394, 25 Sup. Ct. 462, 49 L. Ed. 803.
5. The case is not one where equity will take jurisdiction in order to prevent multiplicity of suits. Hale v. Allison, 188 U. S. 56, 23 Sup. Ct. 244, 47 L. Ed. 380.
[5] Other grounds advanced by defendants are sound, but enough has been pointed out not to require further discussion on the proposition that the bill, as framed, will not lie in equity. If, however, the pleadings set forth an action at law the cause would be transferred to the law side. Act March 3, 1915, 38 Stat. 956; Church v. Swetland (District Court memorandum opinion by Judge Lacombe, Oct. 30, 1915, and my memorandum opinion, dated May 11, 1916, neither reported).
[0] 6. Consideration is therefore required of the contention of defendants that the allegations of the bill do not set forth the “actual fraud” referred to in section 50 of the Maine statute, viz.:
“In tbe absence of actual fraud in tbo transaction, tbo judgment of the directors as to tbe value of tbe property purchased * * * shall be conclusive.”
The complaint, in effect, alleges that the property transferred by the syndicate was exchanged for the bonds and stock of Railway. Plaintiff then assumes, not as a fact, but as a conclusion, that the stock was issued for nothing. The allegation as to the payment for the stock not being made “bona fide in cash or in any other matter or thing at a bona fide and fair valuation thereof” is a mere conclusion. That result must follow from some facts alleged. It is elementary that when fraud is relied upon it must be competently alleged. The meaning of the Maine statute is thus stated in Dyer on Corporation Raw (7th Ed.) p. 90:
“This section is copied literally from the present New Jersey Law, enacted in 1888, except that a provision is added that shares may be issued for services. and to this extent our statute in terms is more favorable to incorporators and stockholders than the New Jersey act. It undoubtedly reduces to some extent the liability of original subscribers to the stock of a corporation formed under our general law, and the foregoing provisions relating to stockholders’ liability, and the decisions under them, must be read in the light of it. This limitation is to he found in the substitution of the judgment of the directors for that of the court; in the power to fix the value of the property or services at the inception of the enterprise; and perhaps in the words ‘in the absence of actual fraud’ as distinguished from ‘a bona fide and fair valuation’ of the earlier section. The statute as it stood before the enactment of the section just referred to enabled the creditor of a corporation to go behind even the honest opinion of its directors and to question the actual sufficiency of the consideration for which the shares might have been issued. * * The statute as it stands has yet to be construed by our court: but, in view of the fact that it is a copy of the Rew Jersey law, the decisions of the courts of that state will furnish us with some indication of the construction which will prevail in Maine.”
*602See, also, McMahon v. Pneumatic Transit Co., 85 N. J. Eq. 544, 96 Atl. 999; Coit v. Gold Amalgamating Co., 119 U. S. 343, 7 Sup. Ct. 231, 30 L. Ed. 420.
7. Under some circumstances, Hepburn and Hine, as trustees, might be proper, if not necessary, parties, and that question need not now be passed upon.
The motion as to Hepburn and Hine individually' is granted unconditionally, with costs. The bill as to the remaining defendants, and Hepburn and Hine as trustees, is dismissed, with leave to amend within 20 days. If not amended, the. bill as to them will be dismissed, with costs.

 To dear up the suggestion of plaintiff that plaintiff in the Alderson Case was not a judgment creditor, Mr. Kushmore has had the record examined by Boston attorneys and they report that “court records show that the bill of complaint * * * alleged judgment against the corporation entered * * * in the Circuit Court. * * * ”