78 F. 526 | U.S. Circuit Court for the District of Indiana | 1897
(orally). I am as well prepared to make a ruling upon tbe demurrer at this time- as I should be if I held it longer for tbe purpose of deliberation and examination of authorities. Tbe court has invited tbe fullest discussion of all tbe questions that-appear to be raised by. tbe demurrer to,tbe bill,
The first question that is raised by the averments of the plaintiffs’ bill is the question whether the plaintiffs have any standing in a court of equity on the theory on which they have grounded their cause of action. The plaintiffs allege that having learned that the stock which they purchased in the open market was tainted with fraud, and that the .whole number of shares of stock that they had bought was indistinguishable, so that they were unable to ascertain what shares of stock originated in the fraudulent conspiracy which, they charge, and what shares of stock represent a portion of thé original and valid capital stock of the company, they come into court and elect to repudiate, and ask the court to cancel, an aliquot part of their 200 sháres of stock, in the proportion that 15,000 shares of stock, the original valid .shares, bear to the 35,000 shares which they charge were brought forth as the result of this fraudulent conspiracy. They ask the court to aid them in making an election by virtue of which they shall be relieved from the burdens that they assume may be cast upon them if they retain the 140 shares of stock which they claim are tainted with fraud; and that the court shall adjudge that they are entitled to do that, and at the same time to retain 60 shares of stock which they ask the court to adjudge are valid and binding and unaffected by the fraud complained of. The question arising, then, is this: Can a party who makes a single purchase of stock, as si single act of contract, repudiate, either with or without the assistance of the court, so much of the single and indivisible contract as may be burdensome to him, and involve him in liability to suits and damages by reason of his retention of it, and at the same time retain the other portion of the stock which he alleges
A further objection is made to the bill, that it is multifarious. Multifariousness consists in stating against the same party two or more independent causes of action in the same bill, or it may consist in stating one or more causes of action against a portion of the defendants and another cause of ad ion against another portion of the defendants. Here, in so far as the plaintiffs seek to he relieved of the fraudulent stock that they purchased, and to have it canceled, and io have the valid portion of it adjudged to be valid, and they adjudged to be stockholders and entitled to the rights of stockholders in the corporation in respect of that, it constitutes a cause of action which belongs alone to the plaintiffs. It is a cause of action which does not present a right of action in favor of the corporation or in favor of any other stockholder. It is a right of action that inures exclusively to the benefit of tbe plaintiffs, and in which no other stockholder in the corporation is directly or legally concerned. The portions of the bill in which the plaintiffs as stockholders seek to redress the wrongs that have been suffered by the corporation by reason of the wrongful diversion of 35,000 shares of stock, and by reason of the wrongful gift of $2,250,000 or more of the proceeds of the bonds to McKee and Yerner, constitute a cause of action that concerns the entire body of stockholders as cestuis que trustent, who are entitled, after the payment of debts, to have that fund distributed among them. The primary right to enforce any cause of action that exists for such wrongs is in the corporation, and a stockholder cannot intermed-dle by bringing a suit to recover such assets until he has shown that it is impracticable that the just rights of the stockholders can he preserved through corporate action. The two causes of action, then, that are set out in this bill of complaint, are distinct and independent; one being a cause of action that belongs individually and exclusively to the plaintiffs, and the other a cause
It is further objected that the plaintiffs in this case, having become purchasers of the stock, although they were good-faith purchasers of it, took it and hold it by no better or different title than the transferror of it to them. It is clear that the shares of stock in a corporation are not governed by the law merchant, nor are they governed by the statute of this state touching bills of exchange and notes made payable in a bank in this state. Securities of that character, in the interest of commerce and commercial dealings, are placed upon such a footing that if they reach the hands of an innocent purchaser for value, before maturity, the holder acquires them by a new and indefeasible title, which enables him to collect the contents of such bills or promissory notes without regard to the defenses, legal or equitable, existing between the original parties to them. But stocks are mere choses in action, governed by the principles of the common law, and by the common law such choses in action are no better or higher evidence of title or right in the hands of an assignee than they were in the hands of the assignor. That is the general rule, — a rule that, in my judgment, is applicable to this case, — and, without a reference to the adjudications that have been read to the court, the court would have reached the same conclusion by the application of the general principles of law with which the members of the bar as well as the court are familiar. So that in this case I see no principle of the law that would authorize the plaintiffs to maintain the present bill on the ground that the stock that they had purchased, by the transfer or assignment of it, had acquired some new rights or equities that the stock did not possess in the hands of the trans-ferror or assignor. And this view seems to be supported by the authorities that have been read, which are in harmony with the understanding that the court has of the principles involved in this sort of contracts.
It is not necessary that the court should express any opinion with reference to the proper scope and effect of the ninety-fourth rule in equity. The rule seems to be so plain and explicit that no commentary upon it would make more apparent the meaning than that which is obvious from the mere reading of it.
There is no averment in the bill or in the affidavit that any effort was made to procure remedial action from the board of directors
There only remains one further inquiry, and that is whether or not the demurrer should be sustained and the bill dismissed without prejudice, or whether leave should be granted to amend the bill.
Mr. Wallace: If your honor please, we do not care to have leave to amend.
The Court: It seems to the court to be apparent, from the observations already made, that it would be impossible for the plaintiffs to amend their bill so as to obviate the objections that have been pointed out to it.
In finally disposing of the case, the court desires to say that it is always a matter of regret to the court, where grave charges of misconduct are imputed to defendants, that the case should be disposed of by a ruling on demurrer, instead of being disposed of after a full investigation and inquiry into the real truth of the grave charges that are made. The order of the court is that the demurrer be sustained, and that the bill be dismissed, but without prejudice, at the costs of the complainants.