227 F. 292 | W.D. Wash. | 1915
A temporary receiver was appointed in this case, o.n bill of complaint and affidavits of the complainant, for the Goldfield Merger Mines Company, and the cause set for hearing upon application for a continuance of the receivership by the court, and a show-cause order was issued to defendants. Amended bill of complaint was filed, and the matter came on for hearing before the court upon the amended bill, the answer of the defendants, and affidavits made in behalf of the several parties, on the 14th day of April, 1915. From the admitted facts and the affidavits it appears that the Goldfield Merger Mines Company, which will be called “Merger Company,” and the Goldfield Deep Mines Company, which will be called “Deep Mines Company,” are corporations, each of them organized and existing under the laws of the state of Washington, with the principal place of business of each in the city of Seattle. The Merger Company was organized in the year 1908, and the Deep Mines Company in 1911, and complainant is now and has been a shareholder o E record on the books of the Merger Company since 1911. The principal object of the Merger Company is the business of mining, and it is now possessed of divers gold claims, said to be valuable, at Goldfield, in Esmeralda county, Nev. The authorized capital stock of the company is $5,000,000, divided into that number of shares. In July, 1911, all of the shares, except 1,148,677, had been issued to various parties throughout the United States. This number remained in the treasury of the company. The company had been engaged in the exploration of its several claims prior to this date, and was solvent, and was desirous of securing further sums for further exploration. Ores had been found in the various claims of the company, of value, and of such a character as to make further explorations and development desirable. Adjoining the claims of the Merger Company were mines of the Goldfield Consolidated Mining Company, a corpora
The board of directors of the Merger Company and the majority stockholders were desirous of developing the Merger Company as an independent concern, and not to become absorbed by the Goldfield Consolidated Company, and Mr. Wingfield and those in charge and control of the Consolidated and allied corporations were desirous of obtaining control of the Merger Company. In July, 1911, O. C. Whittemore, at the suggestion of Wingfield and others operating with him, in behalf of the Consolidated Company, came to Seattle, and either by direct statements or by suggestions or conduct, led the majority stockholders to believe that he was representing W. A. Clark, of Montana, the mining man, and through such understanding purchased a control in the Merger Company, and led the majority stockholders of the Merger Company to believe that it was the desire of W. A. Clark that he be not known in the transaction, but that the stock be carried in the name of J. Ross Clark, his brother. The control of the Merger was thereupon sold to Whittemore for $300,000. $250$000 of this money was to be put into the treasury of the company for development purposes, and $50,000 paid to some of the shareholders for stock owned by them to make up the control. It was agreed that a new company should be formed, called the Goldfield Deep Mines Company, with a capital of $10,000,000, divided into 10,000,000 shares. The majority shareholders made the exchange by turning their shares to Whittemore and his associates and taking the Deep Mines shares, and this was done to a sufficient extent to pass the control of the Merger Company to the Deep Mines Company. Whittemore and J. Ross Clark obtained in this way a majority and voting control of the Merger Company and also of the Deep Mines Company, and have ever since so held it. The board of directors selected for each company was J. Ross Clark, O. C. Whittemore, C. E. Red-man, John-Erikson, and Claude M. Smith. Whittemore was elected president of the Merger Company and vice president of the Deep Mines Company, and J. Ross Clark was elected president of the Deep Mines Company, which offices these men have since held. C. E. Redman is a local employé of the Las Vegas & Tonopah Railroad and subordinate official therein. Whittemore is attorney for this railroad company, and J. Ross Clark also has some official connection with this road. Erikson and Smith were directors of the Merger Company before the Deep Mines organization, and are representatives of the minority in each com
Wingfield is president of the Atlanta Mines Company and for some years was president of the Consolidated Company, and also president of the Kewanas Mining Company, and is in control of the Booth Mining Company, and a man of great influence in the mining district of Goldfield. After the organization of the board in these companies, and in September, 1911, D. H. Metzgar was appointed general manager of the Merger Company, and served until April, 1913. Prior to his appointment to this position, he was with the Consolidated Company, and upon retiring from the Merger Company he immediately resumed the position of one of the superintendents of the Consolidated Company, and is now superintendent of a company controlled by the Consolidated Company. In April, 1913, John Mocene was appointed manager of the Merger Company, and also retained the position of overhead or top superintendent of the Consolidated Company, and in this double employment remained until August, 1913, when he was succeeded by K. M. Simpson, who was in the employ of Wingfield as field engineer, he acting in this dual capacity while with this company, and when he left the Merger Company he became assistant manager of the Consolidated Mining Company. Simpson was succeeded in the spring of 1914 by A. I. D’Arcy, who is the present manager of the Merger Company, and was a field or exploring engineer for Wingfield, and is now consulting engineer for Wingfield. Claude M. Smith was the Merger Company’s secretary before the Deep Mines and Consolidated control, and remained until June, 1912. He was never connected with the Consolidated Company or Wingfield Company, and was disinterested, and is now a trustee. He was requested, to resign as secretary. H. H. Hudson was selected as secretary of the company, a former employe in the bank of John S. Cooke & Co-, of Goldfield, which is controlled by Wingfield, and during a portion of the time served the bank as well as the company. In September, 1914, Hudson was succeeded by J. C. Walther, who is simultaneously acting as assistant manager of the bank named. F. C. Favier, the assistant secretary of the Consolidated Company and of all the Wingfield properties in Southern Nevada, is in the joint relation of acting for the Merger Company and the Wingfield properties now. All the books of the Merger Company, after the Wingfield and Clark control, have been kept at Goldfield, Nev., in the office and safe of the Consolidated Mining Company. The Merger Company’s attorneys in Nevada are attorneys for Wingfield, for the Consolidated Company, for the Atlanta Mines Company, and for the Booth Mining Company.
In the employment of experts in or about the property of the Merger Company, those in the employ of the Consolidated Company and the Wingfield interests were employed. No report was obtained from any other source. After the receipt of the $250,000 by the Merger Company, the manager of the company began sinking a three-compartment shaft on the St. Ives claim of the Merger Company. A
.5onrIJ+ And the following map shows the various tunnels running from the shaft of the St. Ives to the Grizzley Bear claim and to the Atlanta Mines, and also the tunnels that were extended from the shaft of the Jumbo Extension claim, to which reference will be
At no stage of this work did the Merger Company obtain a waiver of apex rights, either from the Atlanta Mines Company or the Consolidated Company. No action was taken at any time by the directors for the Merger Company, and no record is made of any arrangement with the Atlanta Mines Company, or any company, with respect to the use of this shaft or the tunnel, or for sharing of expense, ■ buit the Atlanta Company did pay $35,000. There was expended by the Merger Company for installing pumps and machinery at the shaft on the St. Ives claim nearly $13,000, at a time when the sole beneficiary seemed to be the Atlanta Company. The Merger Company’s manager, who had charge of this work, is also the manager of the
“I am, and have boon for more than six years last past, the secretary and president of the Goldfield Consolidated Mines Company, and many other corporations in which Mr. George Wingfield is largely interested. * * * At least 10 corporations in which Mr. Wingfield is largely interested are active (ompanies, prosecuting work and carrying on business, and I have found it to bo of very great advantage to these companies to have many matters * * * performed by persons jointly employed by two or three, and in some cases all, of said companies. * * * The friendly co-operation which has characterized the operation of these companies has been beneficial to all parties■ concerned, and has been a distinct aid to the development of their properties. * * * In my capacity of secretary and president of practically all of tlie companies in which Mr. Wingfield is interested, and also in my capacity as agent for such companies, and for Mr. Wingfiehl personally, it has been peculiarly my duty at all times to attend to matters in which he is directly or indirectly interested. The Goldfield Consolidated Minos Company, through the instrumentality of the Deep Mines Company, was and is more largely interested than any one else in the welfare of the Merger Company. That company’s officers, and particularly the board of trustees, live at distant points, with one or two exceptions, so that it is seldom possible to hold board meetings with any regularity. For this reason the custom has long obtained, with reference to the conduct of the Merger Company’s business, for its general manager and assistant, including myself, to look after the company’s interests, and at all times some things need to be done quickly, awaiting subsequent ratification of the board of trustees. When the Merger Company received the 150,000 shares of Jumbo Extension stock as part payment for the sale of the Velvet claim, this stock was for convenience placed in the name of M. E. Hill, trustee, with the idea that it should be sold when market condiUons seemed to justify. On or about September 27, 1014, under the advice of the Merger Company’s general manager, and with the further advice of Albert Burch, general manager of the Goldfield Mines Company, and with the knowledge of Trustee Hill, and believing that the market conditions were favorable, * * * I caused a part of the shares to be sold. * * * ”
Meetings of the trustees were seldom had, which “led to the transaction of business in an informal manner; the practice often being to permit persons of good character, whose honesty was thoroughly well known, to act on behalf of the company without express prior authorization, and thereafter look to the confirmation of their acts by subsequent ratification or acquiescence and tacit ratification. * * * ”
The Merger Mines Company expended in the shaft and tunnels of the St. Ives claim approximately $199,000. It expended other sums in and about and upon the properties of the Merger Company. These expenditures were directed, not by the board of trustees, but under the direction of the officers of other companies, whose interests, it is alleged, were out of harmony with the best interests of the Merger Company, and which companies, as disclosed by the record, did profit by such expenditure, while the Merger Company did not.
At a meeting, of the board of trustees, on the 15th of March, 1915, Trustee Erikson offered the following resolution, and moved its adoption, among others:
“Resolved, that this company, .in its own name or in that of the receiver, 'demand an accounting between this company and the Atlanta Mines Company, and an immediate payment of all sums by the latter company, due to this company, and including rent for the use of 1,300 feet of this company’s three-compartment St. Ives shaft, for all times heretofore used by the Atlanta Mines Company down to the present time”
—which was defeated; Trustees Clark, Redman, and Whittemore voting against the resolution, and Trustees Erikson and Smith for it. Thereupon the following resolution was offered:
“Resolved, that this company, so soon as it is freed from the receivership, forbid the use of the three-compartment shaft of the St. Ives claim by the Atlanta Mines Company, or other companies, unless such company, or companies, in addition to paying the operating expenses, pay a reasonable rental for the future use of the shaft, inclusive of depreciation charges upon pumping or other machinery belonging to this company.”
Upon vote, the resolution was defeated; Trustees Clark, Redman, and Whittemore voting against it, and Trustees Erikson and Smith ior it.
At the bar it was stated that the Merger Company had no interest in the “apex suit” of the Booth Mining Company, and that counsel for the company had so advised; but why counsel should advise the Merger Company that it had no- interest in the suit, and at the same time advise the Booth Company that it has, and that it was a necessary party to the litigation, and make it a party, is not clear, and a board of trustees looking out for the best interests of the Merger Company would not, under such circumstances, rest secure and not consult other counsel.- It is said that:
‘‘This whole case resolves Itself, In its ultimate analysis, to this question: Have or have not the directors acted fraudulently? Have or have not Wing-field and the Consolidated Mines Company acted fraudulently? Have they acted dishonestly? Have they sacrificed the Merger?”
Under the circumstances disclosed in this case, I do not think that there is an, adequate remedy at law. Where the business and affairs of a mining corporation are taken over by the agents and officers of other concerns whose controlling shareholders also control such mining corporation, and the business of such mining corporation is managed in the interest of such other concerns, and the minority stockholders deprived of their just rights, I think there is a liability in equity, and that there is no more valuable function that a court of equity can, under such circumstances, perform, than to protect such minority, and that a court of equity is the only tribune to afford an effective remedy.
From all of the testimony that was presented, the admitted facts, and the indisputable proof upon the issue, it is conclusively established, to my mind, that the Merger Company’s identity is practically lost; that its affairs are not and have not been administered by its board of directors, and that the corporate life, except as mere form, has been abandoned, and the administration of its affairs turned over to the executive and administrative officers of the Goldfield Consolidated Mines Company and allied concerns; that the policy of all of the business of the Merger Company has been planned and carried out by the officers and persons who dictated and directed the policy and business of the Goldfield Consolidated Company and allied concerns, and not by the trustees of the Merger Company, and the interest of the Merger Company has not been subserved in the manner it should have been, hut that the Merger Company’s affairs have been and are being administered in the interest and in behalf of the Goldfield Consolidated Mines Company and allied companies. And it seems fi> me that the hoard of trustees of the Merger Company, in this case, is the Goldfield Consolidated Mining Company and allied concerns, and these interests are seeking shelter behind the board of trustees of the Merger Company, and invoking the official relation of a majority of the trustees of this company for their protection in exploiting their own properties at the expense of the Merger Company. Said Lord Mansfield in Johnson v. Smith, 2 Burr. 962:
“The court would not endure that a mere form or Action of law, introduced for the sake of justice, should work a wrong contrary to the real truth and substance of the thing” (quoted by Circuit Judge Gilbert in Linn & Lane v. U. S., and U. S. v. Smith, 196 Fed. 593, at page 598, 116 C. C. A. 267, at page 273).
In Earle et al. v. Seattle, Lake Shore & Eastern Ry. Co. et al. (C. C.) 56 Fed. 909, at page 910, the court said:
*304 “Manifestly, the purpose of the Northern Pacific Railroad Company, in acquiring a controlling majority of said stock, was to absorb the property, business, and franchise of the Seattle, Lake Shore & Eastern Company. The general manager of the Northern Pacific Railroad Company is now the general manager of the Seattle, Lake Shore & Eastern Company, and a change in the by-laws of the latter ■ company has been made, conferring upon its general manager absolute control of the operation of said railway lines. The five trustees of the Seattle, Lake Shore & Eastern Company are all without individual interest in the company — mere nominal stockholders and representatives of the Northern Pacific Railroad Company, four of' them being officers and agents of said company. * * * A traffic contract has been entered into between the two corporations, which, in effect, deprives the Seattle, Lake Shore & Eastern Company of all independence, and reduces it to the position of a dependent and feeder of’ the Northern Pacific Railroad Company.”
The facts in the instant case present many parallels to this case. The application for a receiver is granted.
<&wkey; For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes
<&wkey; For other eases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes