52 F. 611 | U.S. Circuit Court for the District of South Carolina | 1892
This case comes up on the bill and demurrers thereto. The bill is filed by Louis Ranger, alleging that he is a stockholder in the Champion Cotton-Press Company, a body corporate. That the number of shares was 120, at $700 each. That the company purchased and owned 19 of these. That Mrs. Elizabeth Dowie, who is a defendant, owns 15 shares; Miss Margaret B. Mure, another defendant, owns 15 shares; William Mure, another defendant, 10 shares; R. D. Mure, also a defendant, 6 shares; William Fatman and B. F. McCabe, the other defendants, 20 shares and 15 shares, respectively. Thus all the stockholders are parties to the suit, and with them the corporation. The bill further alleges that, having been prevented by the failure to hold, in 1891, the meeting provided by the by-laws, and the consequent failure to make an exhibit of the affairs of the company by the officers thereof, complainant requested and demanded, at the annual meeting in 1892, a clear and full exhibit of the business and affairs of the company, and that this was peremptorily refused by the president and other officers. That he desired also to examine the books of the company so as to ascertain its condition, and that this also was peremp
Let us examine the demurrer of the president, B. F. McCabe. The bill charges that he has taken possession and control of the moneys of the corporation, depositing them in bank in his own name, in defiance of the express provision of the by-laws, and drawing them out on his own check, in his own discretion, for his own purposes; that especially he has in his hands the sum of $25,680, money of the company, which he has converted to his own use, and for which he fails and refuses to account; that by this action, and the further misuse of the company’s funds by lending them in his own name, the complainant has failed to receive bis proper share of the funds of the company in the shape of a dividend on his stock; that all of his efforts to ascertain the truth about this misuse of funds by the president in an examination of the books, or in calling the president to account therefor, have been baffled and defeated by the direct and active effort of the president himself, aided by the other officers, going so far as to refuse to receive and put a motion for investigation made at a stockholders’ meeting; and that there is a definite purpose so to use the affairs of the company as to depress the stock so as to compel complainant to sell out at a loss. All of these charges are by this demurrer admitted by Mr. McCabe without qualification or explanation; and in this course the corporation, presumably under his control and management, concurs. The other defendants limit their demurrer to such relief as is sought against them. Here we have the admission that a complaining stockholder in a trading corporation has been defrauded and deprived of his share of its property applicable to dividends, by the action of the president in misusing for his own purposes the moneys of the company. That every effort made by him to ascertain the facts connected with this charge have been thwarted by the positive and distinct refusal at the hands of the president, made at an annual meeting of the stockholders, to give any information or explanation whatever. This admission is made. It is denied that a court of equity can give any relief. Strong, indeed, must be the formal or technical difficulties which will forbid this court from at least hearing such a complaint. At the hearing an objection was made to the bill because it was multifarious. No demurrer or other pleading setting up this special defense had been filed. An objection of this character must be specifically taken in the pleadings. If not so, taken, it is deemed to be waived. Oliver v. Piatt, 3 How. 333.
Does the bill make out prima facie a case for equitable relief? There can be no doubt that on a proper showing this court will come to the aid of a minority of stockholders. Dodge v. Woolsey, 18 How. 331. The doctrine is well stated in Waterman on Corporations, (page 578, § 319:)
There are three classes of cases in which stockholders may complain. A minority may object to the business policy pursued by the majority, as tending to injure, perhaps destroy, their interests. In such cases the court will seldom or never interfere. The majority must govern, unless there be a palpable abuse of power or an interference with vested rights. Another class of cases is where the rights and interests of a corporation as a whole are threatened by the action of a third party, an outsider, and the corporate authorities, through inadvertence, negligence, or willfulness, will not move in their defense. In such cases, following Dodge v. Woolsey, supra, the courts of the United States lent a ready ear to the complaint of stockholders who interfered in behalf of the corporate rights. But this indulgence of the courts was greatly abused. Many cases were brought into the United States courts in which the jurisdiction was secured by collusion between a nonresident stockholder and the corporation which itself could not come into this court. This abuse was rebuked in Halves v. Oakland, 104 U. S. 450. The evil was cured by the passage of the ninety-fourth equity rule, consequent on this case. This rule, by its terms, is made applicable to “every bill brought by one or more stockholders in a.corporation, against the corporation and other parties, founded on rights which may properly be asserted by the corporation.” Hawes v. Oakland (page 454) shows that these words, “other parties,” mean “an outsider.” But this case, and the rule consequent upon it, do not apply to cases in which there is a real contest between the stockholder and his corporation. Léo v. Railway Co., 17 Fed. Rep. 273. Hawes v. Oakland draws the distinction broadly and clearly:
“That the vast and increasing proportion of the active business of modern life which is done by corporations should call into exercise the benificent powers and flexible methods of courts of equity is neither to be wondered at nor regretted; and this is specially true of controversies growing out of the relations between the stockholder and the corporation of which he is a member. The exercise of this power in protecting the stockholder against the frauds of the governing body'of directors or trustees, and in preventing their exercise in the name of the corporation of powers which are outside of their charters or articles of association, has been frequent, and is most beneficial, and is undisputed. * * * The case before us goes beyond this.”
After stating that case and the principle of Dodge v. Woolsey, in both of which the action of an outsider was the gravamen of complaint, the court add, (page 454 :)
“This is a very different affair from a controversy between the shareholder of a corporation and the corporation itself, or its managing directors or trustees, or the other shareholders who may be violating his rights, or destroying the property in which he has an interest.”
I am of opinion that this court has jurisdiction over the subject-matter of this bill; that the allegations and form of the bill are sufficient to sustain this jurisdiction; that the cause is not within the mischief or the provisions of rule 94, equity rules; that, if it were, the statements of the bill comply substantially with all the requirements of this rule. He is bona fide a stockholder. There is no suspicion of any collusion to obtain the jurisdiction of this court. He sets forth his effort to obtain relief within the corporation, and his bill is suggestive of the cause of his failure. The demurrers severally are overruled. The defendants have leave to plead or answer over, as they may be advised.