Court Opinion

ID: 9304527
Source: CourtListenerOpinion
Date Created: 2022-12-02 17:15:36.015636+00
Date Added: 2024-06-11T17:13:50.482040
License: Public Domain

DAYTON, District Judge
(after stating the facts as above). A number of these grounds of demurrer can be quickly disposed' of. The second, to the effect that plaintiff shows no interest entitling him to relief, must be overruled inasmuch as the bill alleges him to be the owner of 31 shares of preferred stock of the National Corporation, worth at par $3,100, which, with the other stock of the company, is threatened with destruction in value by reason of the Continental Company having gained illegal control of the National’s property and affairs. Allegations to this effect, taken for true, as they must be on demurrer, would seem to me to show clear interest. The third, that necessary parties are not made to the bill, must be overruled because the bill does not disclose such lack of necessary parties. The fourth, to the effect that the bill does not definitely state the Continental Company’s title to the $10,000,000 of stock and the manner of its acquisition, must be overruled because, in my judgment, the allegations of the bill are full and complete as to these matters. The sixth, that the said plaintiff has not the legal capacity to bring this suit, is manifestly based upon the two contentions set forth in the first and second grounds, as nothing in the bill discloses any personal legal disability, such as infancy or lunacy, so far as the plaintiff is concerned. The second ground of demurrer I have above disposed of; the first will be considered later on. The seventh ground, that “there is a plain, adequate, and complete remedy at law,” in the nature of a suit to recover the balance of the par value of the stock unpaid, I do not consider as sound under the statement of facts set forth in this bill. As said in Daws v. Fleming, 177 Fed. 450:
“While it is true section 723, Rev. St. (U. S. Comp. St. 1901, p. 583), prohibits suits in equity in federal courts where a plain, adequate, and complete repiedy at law can be had, it is also true that, construing this statute, the courts have held that the remedy at law must not only be plain and adequate, hut it must also be complete, and if the remedy at law is doubtful, difficult, not adequate to the object, not so complete as in equity, nor so efficient and practicable to the ends of justice and its prompt administration, then equity will take jurisdiction” — citing Whitehead v. Shattuck, 138 U. S. 151, 11 Sup. Ct. 276, 34 L. Ed. 873; Spokane Mill Co. v. Post (C. C.) 50 Fed. 431; Smith v. Am. Nat. Bank, 89 Fed. 840, 32 C. C. A. 368.
And in Rumbarger v. Yokum, 174 Fed. 55:
“While it would be next to impossible to establish a certain fixed rule to define the dividing line between the two jurisdictions, it is safe to say, in connection with this case, that in cases seeking only a pecuniary judgment for a specific amount the remedy at law is adequate and complete. It is just as safe to say that, when the case requires the administration of a trust, the cancellation or release of liens, the removal of clouds upon title, and accounting— especially where fraud is charged, involving the consideration of fiduciary and trust relations — although the rendering of a pecuniary judgment may be one of the results sought, the remedy at law is neither adequate nor complete, and equity will assume jurisdiction” — citing Oelrichs v. Spain, 15 Wall. 211, 21 L. Ed. 43; Kilbourn v. Sunderland, 130 U. S. 505, 9 Sup. Ct. 594, 32 L. Ed. 1005; Clews v. Jamieson, 182 U. S. 461, 21 Sup. Ct. 845, 45 L. Ed. 1183.
*220In this bill the plaintiff stockholder insists that his interest demands, and his lawful rights entitle him to, a cancellation of this issue of $10,000,000 of stock, not a ratification of its alleged illegal issue by the recovery at law of the unpaid balance of its par value. He charges, in effect, its issue to have been in violation of statutory law and of the trust obligations due from the directors to himself and other stockholders, by reason of which the company’s credit and dividend-paying capacity is endangered and irreparable injury and damage threatened. And, by reason of the settled design and purpose of the Continental Company, by reason of its holding this illegal issue of stock, to assume management and control of the National Company’s affairs, divert to its own use its revenues and property, thereby causing its ruin and bankruptcy and that of its underlying companies, he asks for receivers for the National and injunction against the Continental to stay it from carrying out its destructive purpose. 'Surely, under such allegations, it is clear that a suit at law to recover the unpaid par value of this alleged illegally issued stock would not be an adequate and complete remedy, efficient and practicable to the ends of justice and its prompt administration.
The eighth ground, to the effect that jurisdiction is not shown by proper averments as to citizenship of parties, must fail because the bill charges plaintiff to be a citizen of Indiana and all necessary parties defendant to be citizens of West Virginia and of this district, except the Continental Company, alleged to be a citizen of New Jersey, but as to which jurisdiction is alleged to attach by reason of the property involved being situate in this state and district, as to which a cloud upon title is sought to be removed under section 8 of the act of March 3, 1875 (18 Staff 472, c. 137 [U. S. Comp. St. 1901, p. 513]).
The ninth ground .is untenable because it is manifest this controversy is not one “arising under the Constitution or the laws of the United States,” but “between citizens of different states.”
The tenth ground is also untenable because the allegations of the bill fully set forth that the managing directors and officers of the Ña-tional Company are antagonistic to plaintiff and are denying his alleged rights.
The fact that the ultimate interest of a corporate defendant may be the same as that of the complaining stockholders does not require, in arranging the parties to a cause, for the purpose of determining the jurisdiction of a federal Circuit Court, invoked on the ground of diversity of citizenship, that such corporation be grouped on the side of complainants, where the bill alleges that the corporation is under a control antagonistic to complainants, and is made to act in a way detrimental to their rights. Doctor v. Harrington, 196 U. S. 579, 25 Sup. Ct. 355, 49 L. Ed. 606.
Nor do I believe the bill to be objectionable because of multifariousness, as-set forth in the eleventh ground.
As said in Rumbarger v. Yokum, 174 Fed. 55:
“It is always to be remembered that the determination of whether a bill is multifarious or not is a question of sound discretion, dependent upon the facts of each case, and the very general ruling of the courts is that a bill *221which involves the same indivisible subject-matter is not multifarious because of separate claims thereto” — citing United States v. Am. Bell Tel. Co., 128 U. S. 315, 9 Sup. Ct. 90, 32 L. Ed. 450; Walter v. Powers, 104 U. S. 245, 26 L. Ed. 729; Brown v. Trust Co., 128 U S. 403, 9 Sup. Ct. 127, 32 L. Ed. 468; South Penn Oil Co. v. Calf Creek Oil & Gas Co. (C. C.) 140 Fed. 507; Arnold v. Arnold, 11 W. Va. 455; Shafer v. O’Brien, 31 W. Va. 601, 8 S. E. 298. I
This brings us to a consideration of the first and fifth grounds for this demurrer, which, in argument, were most earnestly insisted upon and present questions of more difficult solution.
The first insists the bill must fail because on its face it admits that plaintiff has not attempted “to secure such action as he desires on the part of the managing directors or trustees, and, if necessary, of the shareholders” of the National Company, as provided by Equity Rule 94. .This rule is nothing but a statement in concrete form, of equity procedure, as administered by the High Court of Chancery of England for centuries and uniformly adopted by the equity courts of this country. As the “reason of the law is the life of the law,” so the reason for the rule is the justification for its enforcement. It is not an arbitrary rule subject to no exception. To establish such an arbitrary rule would be abhorrent to equity, having its existence and exercising its powers largely on account of the necessary modification, under exceptional conditions, of the arbitrary rules of the law. As said by Mr. Justice McKenna, in the recent case of Delaware & H. Co. v. Albany & S. R. Co., 213 U. S. 435, 29 Sup. Ct. 540, 53 L. Ed. 862:
“The purpose of rule No. 94 hardly needs explanation. It is intended to secure federal courts from imposition upon their jurisdiction, and recognizes the right of the corporate directory to corporate control; in other words, to make the corporation paramount, even when its rights are to be protected or sought through litigation. Gases in this court have indicated such right. But the directory may be derelict and the interest of stockholders put in peril, and a case hence arises in which the right of protecting the corporation accrues to them. Buie 94 expresses primarily the conditions which must precede the exercise of such right, but emergencies may arise in which the antagonism between the directory and the corporate interest may be unmistakable, and the requirements of the rule may be dispensed with; o-r, it is more accurate to say, do not apply.”
And in Doctor v. Harrington, 196 U. S. 579, 25 Sup. Ct. 355, 49 L. Ed. 606, it is said:
“The ninety-fourth rule in equity contemplates’ that there may be, and provides for, a suit brought by a stockholder in a corporation, founded on rights which may properly be asserted by the corporation. And the decisions of this court establish that such a suit, when between citizens of different states, involves a controversy cognizable in a Circuit Court of the United States. The ultimate interest of the corporation made defendant may be the same as that of the stockholder made plaintiff; but the corporation may be under a control antagonistic to him, and made to act in a way detrimental to his rights. In other words, his interests and the interests of the corporation may be made subservient to some illegal purpose. If a controversy hence arise, and the other conditions of jurisdiction exist, it can be litigated in a federal court.”
And the decision of the court below in this case dismissing the stockholder’s bill was reversed because the defendant corporations *222REPORTER. were alleged to be under the control of the Harringtons, antagonistic ~o them and deterimental to their rights.
rights. These two decisions and others of the Supreme Court cited in them by the court and by counsel in argument, as well as those in Young v. Alhambra Mining Co., 71 Fed. (C. C.) 810; County of Tazewell v. Farmers' Loan & Trust Co., 12 Fed. (C. C.) 752; Ranger v. Champion Cotton-Press Co. (C. C.) 52 Fed. 611; and Excelsior Pepple Phosphate Co. v. Brown, 74 Fed. 321, 20 C. C. A. 428, this last by the Cir- cuit Court of Appeals for this circuit-have fully convinced me that an exceptional case is here alleged where rule 94 does not apply, and this ground of demurrer must be
overruled. Fiiially, it is insisted by the fifth ground of demurrer that the title of the Continental Company to the $10,000,000 of stock, as shown by the allegations of the bill, is indefeasible and cannot be canceled. In support of this contention, counsel insist upon two propositions: First, the negotiable character of stock when assigned; and, second, that stock, which a corporation has general power to issue, but not in a manner in which, or upon the terms upon which, it was in fact issued, is merely irregniar and
voidable. In support of the first proposition are cited the cases of Lipscomb's Adm'r v. Condon, 56 W. Va. 416, 49 S. E. 392, 67 L. R. A. 670, 107 Am. St. Rep. 938; Bank v. Belington, C. & C. Co., 51 W. Va. 78, 41 S. E. 390; Clark v. Bever, 139 U. S. 96, 11 Sup. Ct. 468, 35 L. Ed. 88; Fogg v. Blair, 139 U. S. 118, 11 Sup. Ct. 476, 35 L. Ed. 104; Handley v. Stutz, 139 U. S. 417, 11 Sup. Ct. 530, 35 L. Ed. 227; Martin v. South Salem Land Co., 94 Va. 28, 26 S. E. 591.
591. inese cases do not seem to me to be applicable nere. in the Lips- comb Case the gist of the ruling is that stock can be assigned other than by assignment of the certificate of stock and transfer upon the hooks of the corporation, and that when so assigned, without fraud, it is not subject to attachment or execution subsequently issued against the assignor. In Bank v. Coal & Coke Co. it was held that, under the special exception contained in section 24, c. 53, Code W. Va. (section 2253, Code 1906), mining companies might issue stock at par in pay- ment of property for their corporate uses at an overvaluation for such property; the price thereof being agreed upon by the owners and di- rectors. Without discussing the facts involved,- it is sufficient to say the cases of Clark v. Bever, F~ogg v. Blair, and Handley v. Stutz, were decisions under the laws.of Iowa, Missouri, and Kentucky, respec- tively, where no such statutory provisions as those contained in sec- tion 24. c. 53. of the Code of this state exist.
exist. In support of the second proposition, the cases of Handley v. Stutz, 139 U. S. 417, 11 Sup. Ct. 530, 35 I~. Ed. 227, Scovill. v. Th~yer, 105 U. S. 143, 25' L. Ed. 968, Pullman v. Upton, 96 U. S. 328, 24 L... Ed. 818, and Uptonv. Tribilock, 91U.S. 45, 23 L.Ed. 203, are
cited. These cases do not apply to the lacts here. Their general scope in- volves the right of creditors to xecover against stockholders the un- paid balances on stock issued to them below par, by their participation and with the understanding that it should not be further assessed. But, aside from this, it seems to me that there can be said to be *223general power in a corporation to issue stock contrary to express statutory provisions of the state giving it life. It assumes its life and maintains its existence under and in obedience to such laws. I cannot assume any “general” or “special” power other than so guaranteed and vested in it by such laws.
The demurrer to the bill will be overruled.