139 N.Y.S. 17 | N.Y. App. Div. | 1912
Lead Opinion
This action is brought by the plaintiffs who are stockholders of the defendant, the Rutland Railroad Company, owning 1,349 shares of the common or preferred stock in that company. It is not alleged that either of the plaintiffs own any stock in either the New York, New Haven and Hartford Railroad Company, or the New York Central Railroad Company, and plaintiffs do not claim in this action to enforce any right or to recover for any damages sustained by the Rutland Railroad Company of which they are stockholders. They seek to maintain this action as owners of a small minority of the stock of the Rutland Company and their right to maintain the action
The Rutland Company is a corporation organized under the laws of the States of Vermont and New York and owns and operates a railroad from Ogdensburg in the State of New York to Alburg in the State of Vermont, and thence to Rutland and Bellows Falls in the State of Vermont and of certain branches extending to the towns of Chatham and White Creek in the State of New York. It is also the owner of the capital stock of another railroad corporation and has certain trackage agreements with certain Canadian railroad companies and agreements with steamship lines on the St. Lawrence river and on the Great Lakes. The Rutland railroad also connects with a railroad known as the Boston and Maine Railroad Company, operating a railroad in New England. The New York Central railroad is a corporation organized under the laws of the State of New York and operates an extensive system of railroads through New York State and, by reason of its control of the • stock of other railroad companies, a system of railroads extending through many of the States of the Union and constitutes one of the main lines between the Western States and the Atlantic seaboard. The New York, New Haven and Hartford Railroad Company is a corporation organized under the laws of the New England States and' controls the Boston and Maine railroad.
The New York Central Railroad Company was the owner of 47,041 shares of the preferred stock of the Rutland Company and 19,940 shares of the common stock of that company, constituting a majority of the stock issued, and by virtue of that ownership controls the election of the' directors of the Rutland Company.
The complaint alleges that in or about February, 1911, the New York Central and the New Haven companies contriving and intending unlawfully to restrain the trade and commerce within and among the several States and between the said States and foreign countries carried on by them and by the Rutland Railroad Company respectively, and contriving and intending unlawfully to monopolize such trade and commerce, and contriving and intending unlawfully to restrain
The complaint then alleges that in consequence of these acts a combination or conspiracy in restraint of trade or commerce among the several States and with foreign nations formerly carried on by the railroad companies independently has been formed and is in operation and the defendants are attempting to monopolize such interstate and foreign trade and commerce “ to the great and irreparable damage of the people of the States of New York, Massachusetts and Vermont and the United States, in derogation of their rights, in violation of the laws of the States of New York, Massachusetts and Vermont, and the act of Congress adopted July 2nd, 1890,” commonly known as the Sherman Act, and “ to the great and irreparable damage and injury of all the minority stockholders of the
It is then alleged that there are about 800 minority stockholders of the Butland Company who are citizens and residents of a large number of States, and the plaintiffs bring this suit on their own behalf and on behalf of all other stockholders of the Butland Company similarly situated who may come in and contribute to the expense of the suit and join in the prosecution thereof. And the judgment demanded is that the defendant the Butland Company be perpetually enjoined from registering on the books of the Butland Company any transfer of the stock of the Butland Company from the New York Central Company to the New Haven Company and from in any manner recognizing or accepting either the New York Central Company or the New Haven Company as the holder or owner of any shares of the capital stock of the Butland Company; from permitting either the New York Central Company or the New Haven Company from voting any of said stock; from permitting any of the stockholders of the Butland Company to vote any amount in excess of ten per cent of the outstanding capital stock thereof; enjoining the New Haven Company from acquiring or receiving from the New York Central Company any of the stock of the
Upon this complaint the Special Term granted a temporary injunction restraining the New Y ork Central Railroad Company, its stockholders, directors, officers, agents and attorneys and each of them from in any manner transferring or delivering to the defendant the New Haven Railroad Company or its representatives any of the capital stock of the defendant Rutland Railroad Company now owned by the said New York Central Company and enjoining the New Haven Railroad Company, its stockholders, directors, officers, agents and attorneys from acquiring or receiving from the defendant the New York Central Company any of the stock of the defendant Rutland Company and enjoining the Rutland Company from registering on its hooks any transfer of its stock from the New York Central Railroad Company to the New Haven Railroad Company, and from the order granting that injunction the defendants appeal.
While there is a general allegation in the^complaint_as„to »rn_^«g—i iinniwi'iM the irreparable injury,.,that this transfer will cause to the. minority stockholders of, tlieT Rutland^Gompany, no fact is alleged which would, justify an infer,ence^of^such^damage. Before the agreements alleged in the complaint and which are complained of were made the New York Central Company owned a majority of the stock of the Rutland Railroad Company; after such transfer is completed the New Haven Company will- own a majority of the stock of the Rutland Company,
It appears from the record and is repeated in the brief that the position of the Eutland minority stockholders’ committee before the Public Service Commission when this question as to allowing this transfer of stock was before it, was that in any event the control should not be allowed to pass unless adequate provision was made for the protection of the minority stockholders and that this could not be accomplished except by requiring the purchasing company to pay for such minority stock as may be offered the same price as it had agreed to pay for the majority stock, namely, about $105 per share. And complaint is made that the Public Service Commission in passing upon the application of the New York Central railroad to acquire the stock of the Ontario and Western Bailroad Company held that such leave should not be granted except by imposing as a condition of authorization that the Central Company should take over such minority stock as may be. offered it upon the samé terms per share as it paid to the New Haven Company and that the Public Service Commission granted the application of the Central Company to turn over the control of the Eutland Company to the New Haven Company without imposing the slightest condition or restriction for the protection of the minority. One of the plaintiffs’ contentions, as stated by the learned counsel for the respondents, is that “ without regard to the Anti-Trust Law and even if the transaction were otherwise lawful, one corporation will not be permitted to acquire the bare control of a competitor, with all the opportunities and temptations for oppression and discrimination presented by such a situation without at least being required to offer to the minority hold
It must be quite apparent from this record that the injury that these plaintiffs complain of was caused by the refusal of the New Haven railroad to purchase their stock.at the same price as the stock was purchased from the New York Central railroad, and.that the object of the minority stockholders’ objection before the Public Service Commission and this litigation is to forcé the New Haven railroad to purchase their stock at the price at which they have purchased the majority stock from the New York Central railroad. It is certainly • a doubtful proposition whether a court of equity will allow its process to be used to accomplish such a purpose.
There is one legal question presented at the outset of this investigation which, however, renders further discussion of these questions unnecessary, and that is as to the right of the plaintiffs as minority stockholders to maintain this action or obtain any óf the relief they ask. As before stated, the plaintiffs are owners of a minority of the stock of the Butland railroad. . They do not ask in this case to enforce the rights of the Eutland Company but simply their. rights as owners of a minority of the stock. The facts upon which a minority stockholder can base a cause of action against a majority stockholder has been a question which has been greatly discussed and which in several jurisdictions has led to a considerable difference of opinion; but in this State, at least, the rights that a minority stockholder can enforce against the holders of a majority of the stock have been strictly limited. The distinction between an action brought by a minority stockholder to enforce a right of the corporation whose stock he holds and the right of a minority stockholder to enforce a right of action vesting in himself as a. stockholder is- clearly stated in the opinion of Mr, Justice Latjghlin in the case of Niles v. N. Y.
The question as to the right of the corporation itself to maintain this action was presented to the United States Circuit Court in the case of Hunnewell v. N. Y. Central & H. R. R. R. Co., not reported, and in that case Judge Hoyes, in refusing an application for an injunction, said: “The conclusion reached from the examination thus far is that the complainant in this suit is not entitled to an injunction restraining the sale of said shares. If, however, this conclusion were not reached and this suit were treated as one by the stockholder in his own interest, it would still be impossible for me to grant an injunction upon the ground of want of application to the Public Service Commission, because it now appears that such application has been made.” But those cases only follow the principle established in a line of cases of which McHenry v. Jewett (90 N. Y. 58) is the leading case, in which Chief Judge Andrews said: “ It is not sufficient to authorize the remedy by injunction, that a violation of a naked legal right of property is threatened. There must be some special ground of jurisdiction, and where an injunction is the final relief sought, facts which entitle the plaintiff to this remedy must be averred in the complaint and established on the hearing. The complaint in this case is bare of any facts authorizing final relief by injunction. It is true that it is alleged that the defendant, by the use of the shares, has been enabled to a great extent to control the management of the corporation in the interest of the Few York,.Lake Erie and Great Western Eailway Company, with little or no regard
It is clear that neither in the complaint in this action nor in' the evidence submitted to the Special Term was there allegation or proof that this transfer to the New Haven Company has caused or could cause any injury to the plaintiffs or other minority stockholders except so far as such a transfer would injure the corporation and thus indirectly depreciate the value of the plaintiffs’ stock. ■ In fact, Hr. Justice Laughlin’s opinion conclusively establishes that in this case the plaintiffs have sustained and can sustain no damage by reason of the transfer of the Butland stock to the New Haven Company, so far as it has been completed or by the contemplated transfer of the remainder of the stock owned by the New York Central Company, unless, indeed, the plaintiffs have been damaged by the refusal of the Public Service Commission to compel the New Haven Company to purchase the plaintiffs’ stock, for the same price that the defendant New Haven Company paid the New York Central Company, a damage which I think will be conceded cannot be the basis of an injunction to restrain the New York Central Company from selling or the New Haven Company from buying the stock at a price which the parties may agree to. -There is no allegation that the plaintiffs’stock has decreased in value by reason of this sale of the New York Cen
The 1st section of the Sherman Act makes every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States or with foreign nations illegal, and section 2 provides that every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons to monopolize, any part of the trade or. commerce among the several States or with foreign nations shall be deemed guilty of a misdemeanor. (26 U. S. Stat. at Large, 209, §§ 1, 2.) And it is alleged that this sale by the New York Central Company to the New Haven Company is a contract, combination or conspiracy in restraint of trade or commerce and is, therefore, illegal. The Supreme Court of the United States has lately arrived at a comprehensive construction of the meaning of these provisions in Standard Oil Co. v. United States (221 U. S. 1) and in United States v. American Tobacco Co. (Id. 106). It is unnecessary that we should attempt to determine whether or not these contracts are a violation of this statute or that the sale of this stock by the New York Central Company would be a part of or the carrying
The order appealed from must, therefore, be reversed, with ten dollars costs and disbursements, and the motion denied, with ten dollars costs. ■
Scott, J., concurred; Laugiilin and Miller, JJ., dissented.
Dissenting Opinion
The plaintiffs own 1,349 shares of the capital stock of the Eutland Eailroad Company, for brevity hereinafter referred to as the “ Eutland Company,” a corporation organized under the laws of New York and Vermont, and they bring this action in behalf of themselves and all other stockholders of the Eutland Company similarly situated, and they claim to represent directly 6,151 shares and indirectly 15,000 additional shares of
The plaintiffs further allege that prior to the 16th day of February, 1911, the Central and New Haven companies, contriving and intending unlawfully to restrain trade and commerce within and among the several States and between the States and foreign countries heretofore carried on by them and by the Eutland Company, and to monopolize such trade and commerce and to prevent competition between said railroads, entered- into an unlawful combination and conspiracy with the Eutland Company, its directors and others to destroy competition between the Boston and Albany railroad, controlled by the Central Company, and of the Fitchburg railroad, controlled by the. New Haven Company,. “ to effect a virtual consolidation of the Eutland Company and of the New Haven Company,” and for the purposes aforesaid, and to that end contemplated having the Central Company transfer to the New Haven Company a controlling interest in the capital stock of the Eutland Company then held by the Central Company, consisting of 47,041 shares, to enable the New Haven Company to elect and control
The prayer for relief, so far as material to the decision, is that the Butland Company, its directors, officers and agents be enjoined from registering on its books any transfer of said stock pursuant to said agreement and from permitting either company to vote thereon, and from permitting any stockholder of the Butland Company to vote more than ten per cent of the capital stock, and from recognizing said transfers of the But-land Company’s stock, and from doing any act or thing in furtherance of said unlawful combination and conspiracy, and that the Central and New Haven companies be enjoined from further consummating said contract, and from voting said stock, and doing any act or thing in furtherance of said combination and conspiracy, and that the transfer of said stock by the Central Company to the New Haven Company in so far as it has been consummated be annulled, and that an injunction pendente lite be granted.
The affidavits and evidence presented by the respondents tend to sustain all of the material allegations of the complaint and tend to show that the Butland Company, with its rights to operate its trains over other lines as aforesaid, and the New Haven Company are actually and potentially competitors for interstate trade and commerce from New England and Atlantic coast points to the Great Lakes and ports thereon and other points, as well as for such trade and commerce between most of the New England States and Canada. The moving papers further show that the market value of the stock of the Butland Company is only forty dollars per share, and that President
The learned counsel for the appellants contends that this cáse falls within the doctrine of the authorities holding that the cause of action, if any, is in the corporation, and can only be maintained by a stockholder in the right of the corporation upon alleging as a basis therefor that the corporation on demand duly made has refused to bring the action or facts
This action is neither brought to recover damages sustained by the corporation nor for an accounting by any of the officers of the corporation or by others. The plaintiffs sue to enjoin the consummation of threatened illegal acts by which the control of the corporation will be turned over to a rival competing line, which will he permitted, through its ownership of a majority of the stock, to elect and control the board of directors and dictate the policy and manage the affairs of the corporation of which the plaintiffs are minority stockholders; and it is charged that such acts are not for the best interests of the Rutland Company, and are designed to give the New Haven Company an advantage over it and that such will be then-effect, and this charge is fairly substantiated. The plaintiffs allege that they will be damaged in their rights as stockholders upon the ground that the Rutland Company will he subjected to penalties for violations of the Sherman Act, and that its earnings will he depreciated by a diversion of its business to the New Haven Company and otherwise. The only acts which the
This action cannot be maintained by the minority stockholders in their own right upon the. theory that this statute would give them the right to treble damages, and that the remedy at law would be inadequate owing to the impossibility • of proving the'actual damages. The right of action for damages, if any, would be in the corporation and not in the individual stockholders. It cannot be maintained that the right of action for these damages is given to the stockholders. It would be impossible to determine each stockholder’s proportionate interest, and it would be an unreasonable construction to hold that every stockholder could recover treble damages based on the entire damages sustained by the corporation. It is, however, I think, the settled rule that if the threatened act sought to be enjoined be within the power of the corporation so that pending the action by the stockholder it could be legally consummated or ratified, or if the acts have been consummated and have thereby given rise to a cause of action in favor of the corporation for equitable relief, as for instance the cancellation of a contract or other instrument, then the stockholder can only sue in the right of the corporation; but where it is not. within the power of the corporation to consummate or ratify the threatened acts then equity will, at the instance of a minority stockholder suing in his own right and for the benefit of all stockholders similarly situated, grant injunctive relief. (Heath v. Erie Ry. Co., 8 Blatchf. 347, 392, 395, 396, 400, 401, 406, 407; Zabriskie v. C., C. & C. R. R. Co., 23 How. [U. S.] 381, 395; Railway Co. v. Allerton, 18 Wall. 233; Gamble v. Queens County Water Co., 123 N. Y. 91; Kent v. Quicksilver Mining Co., 78 id. 159, 188; Davis v. Congregation Tephila Israel, 40 App. Div. 424, and cases cited;
The majority stockholder in the circumstances disclosed by this case, a controlling interest having been accumulated by it for the purposes of control, occupies “ substantially the same relation of trust towards the minority as the board of directors would occupy towards the stockholders it represents ” (See Farmers’ Loan & Trust Co. v. N. Y. & N. R. Co., supra), and owes a duty to the minority stockholders to manage the corporation within its charter powers and within all other laws applicable thereto, and in good faith and for the best interests of the corporation; and it is within the jurisdiction of a court of equity to enjoin and redress violations of this, duty; but the honest exercise of the discretion and judgment vested in the majority stockholders cannot be reviewed by the court. (Gamble v. Queens County Water Co., supra; Farmers’ Loan & Trust Co. v. N. Y. & N. R. Co., supra; Flynn v. Brooklyn City R. R. Co., supra; Wright v. Oroville M. Co., 40 Cal. 20; Ervin v. Oregon Ry. & Nav. Co., supra; Meyer v. Staten Island R. Co., 7 N. Y. St. Repr. 245.) It is not necessary to consider the Federal authorities under which counsel for the appellants contends that a suit in equity to enforce the provisions of the Sherman Act by injunction can only be maintained by the Attorney-G-eneral pursuant to the provisions of the act; for in the case at bar well-recognized grounds of equity jurisdiction appear, and the minority stockholders have the same right, in
The Court of Appeals, in Young v. R. & K. G. L. Co. (129 N. Y. 57, 60), on considering whether an injunction, which was essential to a recovery by the plaintiffs, should be vacated, said: “To dissolve an injunction with the inevitable result ’of defeating plaintiff^ remedy without a trial, we must he
On the hearing on the application to vacate the injunction order, which was originally granted ex parte, the plaintiffs offered to have the cause submitted for decision on the merits on affidavits presented on the motion, as depositions, or to try the issues immediately, and they subsequently formally renewed this offer in writing. That was some evidence that the action had not been brought in bad faith and for the purpose of delaying the transfer of the stock. I am of opinion that the plaintiffs have in the circumstances sufficient basis for their contention that the transfer of this stock constitutes a violation of the Sherman Act and a fraud upon the corporation and its minority stockholders to warrant the temporary injunction order until a decision of the action on the merits, which, if the defendants had been willing to proceed to trial, doubtless could have been hadfiong ago. In view of the right which a railroad corporation now has for the exchange of freight and passenger traffic with connecting lines under the Interstate Commerce Act (36 U. S. Stat. at Large, 551, § 12, amdg. 24 id. 384, § 15, as amd. by 34 id. 589, § 4), the efforts of the New Haven Company to obtain a controlling interest in the Rutland Company indicate that it is not actuated by a desire to further the interests of the Rutland Company, and the contrary is clearly shown by the exorbitant price paid for the stock and the admissions of President Mellen of the New Haven 'Com
I, therefore; dissent from the reversal of the order.
Concurrence Opinion
I concur in the result reached, upon the ground that the plaintiffs cannot maintain this action nor obtain the relief which they seek, not having alleged any damages sustained by them as distinguished from those sustained by the corporation.
Dissenting Opinion
I am of the opinion that a minority, stockholder of a corporation may maintain an action to enjoin the transfer of the control of the corporation to ¡a competing corporation in violation of law, and that the plaintiffs have made a sufficient case on that head to justify the Special Term in preserving the status quo until the determination of the action.
I, therefore; vote to affirm the order.
Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs.