Court Opinion

ID: 8841446
Source: CourtListenerOpinion
Date Created: 2022-11-26 16:42:59.537213+00
Date Added: 2024-06-11T17:05:13.189396
License: Public Domain

Mr. Justice G-ridley delivered the opinion of the court. The ultimate question involved in this appeal is whether the circuit court (after sustaining the demurrer of the Railways Co. to complainants’ bill, and after denying complainants’ motion that the five depositaries be ruled to produce a list of all holders of participation certificates issued under the agreement) was warranted, under the allegations of the bill and the sworn answer of said depositaries, in granting the interlocutory injunction. Respective counsel have elaborately argued the question in their briefs, supplemented by oral argument. Complainants’ counsel states that “the main purpose of this bill is, by final decree to place the control of the Railways Co. and its assets in directors selected by the certificate holders, who are the equitable owners of the company”; that the bill “is not one to compel the payment of dividends” — that question being involved in the Thatcher case; that the present suit presents for final decision the questions: “(1) whether the Agreement, so far as it relates to the voting of the stock of the Railways Co. is any longer operative, and (2) if so, what is the proper construction of its provision conferring on the certificate holders the right to direct appellants (the Depositaries) whom to elect as directors, and also of its provision requiring these trustees to maintain a list of the certificate holders and their addresses, — the contention of appellees being that this latter provision confers on these certificate holders access to this voting list, for the same reason that the statute confers on stockholders the right to see the stock list — the purpose of both being that they, who have the beneficial interest in the corporation and its assets, may confer together and combine in voting for such persons as they may think should be intrusted with the control of their property”; that the question on this appeal is, “whether the trial court misused its discretion in preventing appellants from proceeding to an election of directors on October 23,1924 (and thus leaving the control of the company in directors already selected by appellants), until the case was at issue and the court had time to deliberately decide these important questions, or, at least, whether the court erred in preventing an election until appellees were given access to the list of certificate holders (which is withheld by appellants) and thereafter given an opportunity to have a meeting of certificate holders, as provided in the Agreement, to direct appellants whom to elect as directors”; that “all these questions arise out of the construction of the agreement,” which together with the ordinance and the plan are set out in the bill as exhibits and admitted by appellants’ answer; and that, hence, all the facts upon which appellees’ contentions rest “are admitted in the record,” and the insufficiency of the affidavit verifying the bill, as claimed by appellants’ counsel, is immaterial. Complainants’ counsel then makes and argues four points, in substance as follows: (1) The bill is not demurrable because the agreement created a revocable proxy in the depositaries to vote the stock of the Railways Co. and by the filing of the bill that proxy has been revoked, and because the agreement amounts to an illegal voting trust as against the rights of the holders of the participation certificates who are the “real” owners of the Railway properties. (2) The bill is not demurrable because it also seeks to secure for the certificate holders the right to see the book kept by the depositaries, containing the names and addresses of all certificate holders. (3) This is a class suit, in that the holders of all series of participation certificates are interested in the legal questions presented and the relief to be granted. (4) As the bill states grounds for relief, the order granting the temporary injunction should not be reversed except for an abuse of discretion, and such discretion has not been abused, for the injunction only preserves the status quo, in that it leaves the control of the corporation in directors selected by appellants and only prevents the election of new directors until the further order of the court. In discussing the first point counsel direct attention to a provision of the agreement that, until Auguál 1, 1912, and, “to the full extent thereafter which may be permitted by law, until all the consolidated mortgage bonds * # * shall be fully paid,” said depositaries shall be entitled to vote the stock for the election of directors, etc., and, while conceding that said bonds are still outstanding, and said voting provision has been operative for 17 years with the acquiescence of all the certificate holders, and the present contest is between the bondholders and the certificate holders because, as charged, the large annual net earnings of the company and its present surplus have not been applied as they should have been to the payment of dividends upon series I certificates, but have been retained to increase the security of the bondholders, counsel says that this voting power so conferred on the depositaries is not “permitted by law,” because of the provision contained in section 3 of article XI of the Illinois Constitution, supplemented by statutory enactment, which directs that “in all elections for directors or managers of incorporated companies, every stockholder shall have the right to vote, in person or by proxy for the number of shares of stock owned by him, for as many persons as there are directors or managers to be elected, or to cumulate said shares, * * * and such directors or managers shall not be elected in any other manner”; and counsel further says that the agreement “is not an attempt to transfer the voting power by way of fledge to the bondholders,” but it “offends against the law and public policy of the State in that the voting power is irrevocably given to the trustees and it does not reserve to the certificate holders as full a power in the selection of directors as the law gives them,” and that “the practical result of the Agreement has been, and is, to take from the real or equitable owners of the property of the company all control of its affairs and vest the same in appellants and Mr. Blair (their appointee), the president of the company and a vice president of two mortgagees.” Counsel for the depositaries on the other hand contend that, under the provisions of the plan and the agreement, the holders of the participation certificates cannot be considered as the stockholders of the Bail-ways Co. And they argue in substance that said plan and agreement disclose that none of the stock of the Bailways Co. ever belonged to them or that they ever had a right to vote it; that the stock and the right to vote it has always been in the depositaries and their predecessors in title, which ownership and right are expressly reserved to them in many provisions of the agreement; that the rights of the certificate holders were Hmited, both by the agreement and the certificates, to the rights then expressed and for the first time created, and the certificates were received by the holders with a full understanding of the limitations, which, aside from the right to participate in the distribution of corporate funds under the conditions mentioned, were to the effect that they had the privilege of giving, by united action, directions to the depositaries as to how they should vote the stock held by them; that under the plan and before the agreement was executed the stock belonged to the predecessors of the present depositaries; that the plan recognizes them as stockholders, in that in section 4 of article 3 thereof it is said that “the stockholders of the Railways Co. will make the capital stock of the Railways Co., viz, $100,000, the subject of an issue of Participation Certificates, of which there shall be issued certificates representing in the aggregate 265,100 equal parts,” etc.; that, in the offer made to all persons interested in the reorganization, the Plan thus recognized, as mentioned in the opinion of U. S. Court of Appeals in the Thatcher case, that those who then held the stock were properly described as stockholders and that the rights to be given to the certificate holders were to be created by their action and with reference to the stock which they owned; and that in the agreement which was subsequently executed the ownership of the stock was continued in them and they retained the voting right thereof. Counsel for the depositaries also contend that, in view of the provisions of the plan and the traction situation at the time the plan was promulgated, the agreement should not be considered as an illegal voting trust, but as a valid agreement. And they argue in substance that the trust position occupied by the depositaries under the plan and agreement is not one in which, as claimed by complainants’ counsel, complainants are the only beneficiaries whose interests merit consideration, "but that the depositaries are trustees for the enterprise as a whole and for the other parties in interest as well; that the alleged facts of the present case are essentially different from those in which it has been held an illegal voting trust existed; that the fact that an agreement creates or involves a trust which either gives or restricts the right to vote corporate stock does not necessarily render the agreement illegal (see Venner v. Chicago City Ry. Co., 258 Ill. 523, 538); that, although, where the owner of stock gives to another the mere power to vote, such power even though made irrevocable in terms may sometimes be revoked (as in Luthy v. Ream, 270 Ill. 170), yet where the right is based upon a consideration, or is coupled with an interest, or is part of a contract by which the stock or some interest in it is acquired, such right may not be revocable (see Chapman v. Bates, 61 N. J. Eq. 658, 665; Boyer v. Nesbitt, 227 Pa. 398, 403); that a voting trust agreement, created as a part of a contract of reorganization, may be held valid and irrevocable as the mutual agreement of all those interested in the reorganization (see Mobile & O. R. Co. v. Nicholas, 98 Ala. 92, 119; Ecker v. Kentucky Refining Co., 144 Ky. 264, 272); that under the facts alleged in the present bill the agreement was part of a general plan for the reorganization of the Chicago street railway system, creating new and interdependent rights and its purpose was not improper; and that complainants are in no position to attack the agreement (see Felt v. U. S. Mortgage & Trust Co., 231 Ill. App. 110, 139). After a careful examination of the bill and the provisions of the ordinance, plan and agreement, and after considering the arguments of respective counsel and adjudicated cases, including said Thatcher case, we are of the opinion that the bill is lacking in equity in its main aspect, and that it is insufficient to support the granting of the main ultimate relief prayed for, viz., that the present right in the depositaries to vote the stock of the Railways Co. under said agreement cease, and that the control of the company be placed in the hands of directors to be elected by the holders of the participation certificates. And we think that the bill is insufficient in equity in so far as it seeks to obtain from the depositaries by a court order a list of the names and addresses of all the holders of the participation certificates. The circuit court denied complainants’ motion for the entry of such an order, and, since the filing in this Appellate Court of the present appeal, the U. S-. Circuit Court of Appeals in the Thatcher case, on an appeal from a decree of the TT. S. District Court dismissing for want of equity a bill somewhat similar in its allegations and character, affirmed said decree, and in the course of its opinion held that the allegations of the U. S. Court bill were insufficient to entitle the complainants therein to obtain by court order such a list. And, the present bill being lacking in equity in its main aspect, and many of its material allegations (outside of the admitted provisions of said plan and agreement) being made on information and belief, which allegations are denied in the answer of the depositaries, we are further of the opinion that the court erred in granting the temporary injunctional order appealed from. An order for a temporary injunction is seldom granted where many of the material allegations, bearing on the ultimate relief sought, are made upon information and belief (2 High on Injunctions, sec. 1567; Board of Trade v. Riordan, 94 Ill. App. 298, 309; Pepper Distributing Co. v. McLeod, 121 Ill. App. 592, 593); and it should only be granted where the right to the ultimate relief is probable, and then on the theory of its necessity to prevent a substantial impairment of that right, pendente lite. In the present case there is no showing of any necessity for the injunction. The situation as to the exercise of the right of the depositaries to vote for directors is the same as it has been for 17 years. Clearly, the right to vote for directors should exist somewhere, and an injunction taking away that right from the parties in whom it has been lodged for so long a period is drastic in its character. With the injunction in force it is at least doubtful if vacancies in the directorate caused by death can be filled. Furthermore, the injunctional relief prayed for against Blair and his codirectors was in effect denied when the court sustained their demurrer to the bill. They were the parties against whom the vague and indefinite charges of misconduct were made. Yet the court granted the injunction against the depositaries based on a bill held insufficient as against the parties charged with the alleged misconduct. In view of our holdings it is unnecessary for us on this appeal to discuss the question, argued by respective counsel, whether complainants, as holders of some of the certificates, can properly represent all of the certificate holders as a class in the present proceeding. _ For the reasons indicated that portion of the order of the circuit court, entered October 24,1924, restraining until the further order of the. court the five depositaries, Harrison B. Riley et al., “from voting the stock of the Chicago Railways Company for the election of any director of the said Railways Company” is reversed. Reversed. Fitch, P. J., and Barres, J., concur.