Court Opinion

ID: 8125569
Source: CourtListenerOpinion
Date Created: 2022-09-09 15:05:50.517626+00
Date Added: 2024-06-11T16:39:12.774902
License: Public Domain

Gresham, J.,
(orally.) This suit is brought by the complainants, four stockholders, in right of the company, against the company and Wilson, who owns a majority of the stock, and all the other stockholders. It is brought upon the theory that Wilson fraudulently controlled the company to its injury, and for his own benefit, through a board of directors of his own selection, wiio were his mere creatures. No effort was made to induce the company to bring suit, or to call Wilson to account in any way for his alleged misdeeds. The only reason which is assigned for thus bringing the suit is the fact that Wilson owned a majority of the stock, and in that way controlled the board. It is claimed by the complainants that it would have been vain and fruitless to call upon the board to sue Wilson, and make him disgorge, when the board was his mere creature or instrument. It is true that Wilson owned a majority of the stock, and was thus able to elect a majority of the board of directors; but the evidence shows that the boards were always elected unanimously, and that the so-called “minority” voted for Wilson and those who are now denominated as his mere tools. The minority did this with knowledge of the facts which they now claim amounted to fraud on Wilson’s part. The complainants should have demonstrated their inability to deal with Wilson through the board before bringing this suit in their own name in right of the company. The law does not presume that the board of directors, or a majority of them, will be *679unfaithful because they were elected by a person owning a majority of the stock. The evidence in this case, fairly considered, does not justly warrant an imputation of dishonesty against those who composed the board at the time this suit was brought, or at any previous time. As already stated, the vote at the election of directors was always unanimous, and those stockholders who are now most active against Wilson in this suit voted with him at all times.
This suit cannot bo maintained for other reasons. Wilson was president of the board of directors, and it is claimed by complainants that ho resigned from the board, and transferred stock to his frienejs without consideration, to qualify them to act as directors, with a view of having the board thus constituted enter into a contract with himself prejudicial to the interests of the company. Sweeney, Jackson, and others, who are said to have received stock without consideration, were elected members of the board three years before the lease was executed, the so-called “minority” voting for them. The evidence does not indicate that at this time Wilson contemplated such a contract. After these parties were placed upon the board by Wilson, as his mere instruments, and to register his orders, as it is claimed by the complainants, this minority, including the complainants, with knowledge of what Wilson had done, and was still doing, either expressly assented to the action of the board or by their silence acquiesced In Wilson’s acts and management. Crubangh seems to have been the chief spirit in the so-called “minority.” It may be fairly said he inspired this suit, although, for obvious reasons, he appears as defendant rather than complainant. Packard is the only one of the four complainants who testified as a witness, and he was a member of the board from July, 1878, to July, 1879, when the minority referred to constituted a majority of the directors. This was long after the lease which is now complained of had been executed. Packard knew what Wilson had'done under the lease, and was still doing. Neither as a member of tlie board of directors, nor as a stockholder, did Packard, at any time or in any manner, indicate disapproval of the lease, or anything that Wilson had done under it. In fact, all of the complainants knew of the contract of lease, and were fully informed as to Wilson’s action, and none of them ever said or intimated that the lease was injurious to the company’s interest. During the year the so-called minority controlled the board, the correctness of Wilson’s accounts was never challenged. Crubangh caused a resolution to be adopted several years after the execution of the lease, ratifying it, and approving Wilson’s action under it. Boss, secretary and treasurer, made a report to the board on July 22, 1879, showing the state of Wilson’s accounts with the company, and Grubaugh expressed satisfaction with this report, and later again voted for Wilson, and the so-called “majority,” as directors. The board, with knowledge of what Wilson had done, ratified the very things which are now objected to, and the stockholders, including the *680complainants, either expressed their satisfaction with the lease and Wilson’s management, or remained silent for years with knowledge of all the facts.
The case might be different if Wilson and his friends on the board had managed the affairs of the company without the knowledge of the complainants. It does not lie in the mouth of a stockholder to object to what the company has done, if the action which he complains of was taken with his knowledge and consent. He cannot be heard to complain that he has been injured by the doing of something which he knew of at the time, and expressly consented to, or, by long silence, acquiesced in. There is no innocent stockholder here. The affairs of the company were not conducted without the knowledge of the stockholders; there was no secret in the management. Whether or not Wilson’s action was in all respects what it should have been, it was never challenged by a single stockholder, and it had the express approval of some, at least, of the so-called “minority.”
The company was organized to mine coal. It owned 1,700 acres of undeveloped coal lands, and it was without means to open mines, and make the property available. If the company had executed the lease to Wilson while he was a member of the board, and still president of it, this suit could not be maintained on the facts in the record. Such contracts, it is true, are viewed with suspicion, and scrutinized with great care; but, for anything appearing, it was, all things considered, for the benefit of the company. Whether it was or not, however, it would stand against all stockholders who expressly consented to it, or, with knowledge of all the facts, remained silent for years.
The bill is dismissed for want of equity.