Doremus v. National Cotton Improvement Co.

39 App. D.C. 295 | D.C. Cir. | 1912

Mr. Chief Justice Shepard

delivered the opinion of the court:

Having given much space to a statement of what we understand to be the substantial allegations of the bill, we will not consume further time by a review of the testimony, but content ourselves with a statement of conclusions therefrom.

1. The court below was right in holding that no jurisdiction had been acquired of the National Cotton Improvement Company by the service of the process in this case. Under the interpretation that has been given to the statute authorizing service of process upon foreign corporations doing business in the District of Columbia, the said corporation had no office in said District, at the time of servicej for the transaction of business, and was not doing business therein. Ricketts v. Sun Printing & Pub. Asso. 27 App. D. C. 222; New York Continental Filtration Co. v. Karr, 31 App. D. C. 459; Ferguson Contracting Co. v. Coal & Coke R. Co. 33 App. D. C. 159; Mitchell Min. Co. v. Emig, 35 App. D. C. 527; Toledo Computing Scales Co. v. Miller, 38 App. D. C. 237. In fact it was not doing business anywhere, in the ordinary sense of the term; its purpose having been accomplished by the issue of stock for the purchase of the Doremus United States patent, which formed the sole basis of its capitalization.

2. The answer for said corporation, purporting to have been filed by Daniel J. Sully, as vice-president, did not have the effect to bring the corporation before the court. The corporation had a president, as well as a vice president; and without pausing to consider whether Sully was actually its vice president at the time, it does not appear that he had any authority as such officer to enter its appearance, or answer for it in this suit. Ambler v. Archer, 1 App. D. C. 94-106. It does not seem that it was to its interest to appear voluntarily. On the contrary its answer would seem to have been filed by Sully in the interest of the plaintiffs. The entire record of the case furnishes an example of corporate formation, stock watering, and manipulation that is made possible by the character of the corporation laws in force in many of the States, as well as by the absence of restraining legislation in the District of Columbia.

3. Assuming, what may reasonably be inferred from the circumstances, in evidence, that Sully stimulated this litigation, desiring thereby to accomplish some purposes of his own, it does not follow that plaintiffs shall lose any substantial rights they may be entitled to under the allegations of their bill. It remains to be inquired what these are, if any, and if they may be adjudicated in the present proceeding with the parties properly before the court. So far as inquiry into the corporate proceedings of the General Cotton Securities Company, looking to the correction of its minutes, and the legality of its election of Directors and other officers, is involved, that corporation is a necessary party. But being a foreign corporation, if it were a party the courts of this jurisdiction would have no power to control its internal affairs and the administration of its corporate functions. Clark v. Mutual Reserve Fund Life Asso. 14 App. D. C. 154-175, 43 L.R.A. 390; Barley v. Gittings, 15 App. D. C. 427-443. It does not appear that the administration of- the internal corporate affairs of the National Cotton Improvement Company is necessarily involved, nor would it be a necessary party to a mere determination of the right to the ownership of its capital stock as between rival claimants thereof, if such were the object of this suit.

4. The evidence shows that Miller has paid the plaintiffs the consideration named in the contract with them for the purchase of the United States patent of Doremus, which patent was assigned to the National Cotton Improvement Company as the consideration for the issue of its capital stock. Ninety-six per cent of this stock was subsequently transferred to the General Cotton Securities Company, which, representing the ownership of the Doremus patent, made the same the basis of its enormous capitalization, otherwise unrepresented by value. The consideration of the purchase of the stock of the National Cotton Improvement Company was the issue to Sully of $3,000,000 preferred and $3,000,000 common stock of the General Cotton Securities Company, upon his promise to transfer and deliver the Cotton Improvement Company’s stock aforesaid, and to pay also to the General Cotton Securities Company the sum of $1,600,000 from time to time upon its demand, without interest, and at such terms and in such amounts as said company may nominate. A syndicate consisting of Sully, John Hays Hammond, D. B. Atherton, Mont D. Rogers, and Harris Hammond was formed by agreement between them, which recites that Sully had acquired the $3,000,000 preferred and the $3,000,000 common stock of the General Cotton Securities Company aforesaid, and desired to enter into a syndicate or joint venture with the other signers to sell the same. The syndicate agreed to use its best endeavors to sell the $3,000,000 preferred and $750,000 of the common stock subject to a voting trust. The syndicate was to divide all profits made in the sale of stock, after deducting the sum of $100,000 to reimburse John Hays Hammond for money advanced, and to pay expenses. Sully was constituted syndicate manager and authorized to select a trust company. It does not appear that the syndicate assumed personal responsibility for the contract with Sully, but the amount of money promised by him to the General Cotton Securities Company was necessarily to be deducted from the amount realized from the sale of its stock; but for the purposes of this case that fact is immaterial, because the corporation had accepted the personal contract of Sully as part of the consideration for the issue of $6,000,000 of stock.

The capital stock of the National Cotton Improvement Company had been obtained for delivery to the General Cotton Securities Company under an agreement entered into between John P. Miller, Sully, and John Hays Hammond on December 28, 1909. Miller agreed to transfer and deliver the stock to Sully and Hammond, and to receive in payment therefor $37,500 in cash and $1,000,000 preferred and $1,000,000 common stock of the new corporation undertaken to be formed by them; the common stock to be delivered to the voting trust, certificates of beneficial interest to be issued to the voting trustees. The $1,000,000 common stock was to be sold so as to net Miller $400,000. Sully and Hammond were to use their best endeavors to sell $2,000,000 preferred stock of the new corporation so as to net to the treasury of the same $1,600,000; they were to be under no personal liability other than to pay Miller said sum of $37,500, to deliver to him the stock aforesaid, and to use their best efforts to sell the stock as agreed. Certificates for the common stock were issued and deposited with the United States Trust Company, and a certificate issued to Miller showing his beneficial ownership. February 3, 1910, Miller made a declaration of trust declaring Doremus the beneficial owner of 4,600 shares; Du Bois the owner of 2,275'; Bright the owner of 500;“and William Muerling the owner of 400. There were some contracts between Miller and Doremus respecting the foreign patents to be applied for, which it is unnecessary to detail. The foregoing shares are in the possession of the United States Trust Company. The bill prays a decree compelling said trust company to deliver out of the 10,000 shares of preferred stock in its possession, 5,000 shares to plaintiff Doremus and 2,500 shares to plaintiff Du Bois; also directing Sully, Bright, and Hammond, trustees, to- deliver the certificates of ownership of the common stock specified in the Miller declaration of trust. Other relief prayed is by way of injunction against the entering into any contract by the National Cotton Improvement Company relating to the Doremus patents, and from transferring any of its stock in the name of Miller on its books. It is prayed that Miller be restrained from entering into any contract relating to the stock of the National Cotton Improvement Company, and commanded to -return the same to the General Cotton Securities Company, and to assign, or reassign any patents or applications for patents by the Fordyce Company to the said Securities 'Company.

Whatever rights the plaintiffs may have are narrowed to the ownership of the shares of the General Cotton Securities Company held in trust by the United States Trust Company, as against John P. Miller. Said Miller is a necessary party to this determination; and whether as against him the plaintiffs are entitled to a decree determining the question of ownership is a question that cannot be considered because Miller is not before the court. It was error to dismiss the bill because of the belief that Sully had instigated it against the other defendants. The decree will therefore be reversed and the cause remanded, whereupon the plaintiffs may have it retained for a reasonable time for an opportunity to obtain service of process upon John P. Miller, and to amend their bill if so advised; otherwise it may be dismissed without prejudice. The costs in this court will be taxed one-half against the plaintiffs and one-half against the defendants jointly. It is so ordered. Reversed.

A motion by the appellants for a rehearing Avas denied, Mr. Chief Justice Shepard delivering the opinion of the court:

Plaintiffs’ motion for rehearing is without merit. Their contention is that Miller is not a necessary party to this case, because “all parties, especially Miller, concede that such ownership is not disputed,”—meaning the ownership of the shares of the General Cotton Securities Company issued to Miller by the voting’ trustees of that company, and held in trust by the United States Trust Company.

Whatever may be the concession regarding the ovmership of this stock by the other defendants, who moreover have no interest therein, there is and could be no such concession by Miller, who was never a party to the case. It may be that he will make this concession when made a party and called upon to answer, but he must certainly be made a party before his interest can be affected by a decree declaring the title to the stock.

As a part of the motion there is attached what purports to be an answer of Miller filed in another case pending in the equity court, in which it seems that the title to said stock is in some way involved. This case must be tried upon its own record, and nothing can be introduced from the record of another case. We have, therefore, not considered the copy of the answer in the other case referred to.

The motion is denied.