69 N.J. Eq. 299 | New York Court of Chancery | 1905
(orally).
The bill is filed to secure two objects: One of these objects is to secure for all the stockholders of the defendant corporation, individually and severally, the benefit of a dividend, a distribution to be made to them severally and respectively of at least a portion of the accumulated profits of the corporate business. This remedy is one which is sought on behalf of each stockholder as an individual and the natural defendant in the proceeding is the corporation, the stockholders collectively, taken as a body, engaged not in individual pursuits, but in the pursuit of the corporate business for the common benefit of all. The effect of the declaration of a dividend, whether made voluntarily by a corporation through its board of directors or made compulsorily by the decree of a court of equity, is at once the establishment of a debt due from the corporation to each stockholder, which debt may he sued for in a court of law. The interests of the individual stockholder who prosecutes this sort of an action and the interests of the corporation, the stockholders collectively, who defend it, are plainly hostile. The individual stockholder is enriched and the stockholders collectively, the corporation, is, to the extent of the dividend, impoverished and crippled in its operations.
The other ob'ject of the bill is, to my mind, entirely different. It is to compel the officers and agents of the corporation who have fixed their own salaries, and drawn the amount of these salaries from the treasury of the corporation, to restore what a court of equity may find to have been an excessive amount drawn by them, an amount in.excess of what they have fairly earned. If such an action is prosecuted successfully, it is manifest that the actor really is the corporation. The recovery is had for the benefit of the corporation. It is not an individual right of each stockholder which is enforced in such an action. It is a right of the stockholders, collectively, of the corporation, and the recovery is for the benefit of the stockholders collectively. It is true that in cases like this the action is instituted and prosecuted by a stockholder on his own behalf and on behalf of all other stockholders who may come into the suit; but the right which is enforced is not the individual right of the stockholder,
blow, we have these two, as it seems to me, radically different causes of action combined in one bill: bio objection has been made to the joinder of these two causes of action. The answer meets both claims with defences. Both of these causes of action have in one or more instances, which are reported in our books, been joined, and no exception has been taken to. the joinder. I find no difficulty in disposing of both of these causes of action in one suit. There is no 'inconvenience in dealing with them one1 after the other, or dealing with them together. On the contrarj-, there is really a great deal of advantage in joining these two different causes of action, and I am not prepared to say now, as I have not given the matter consideration, that if objection had been made to the joinder of these two causes of action by a demurrer the objection would have been sustained. A lárge part of the proof taken in this case bears equally upon the two causes of action; and then, too, when it comes to the decree, if—to suppose the situation which might possibly be embarrassing, certainly would be more embarrassing than any other—if the decree should go in favor of the complainant in
And first; the complaint in the bill that the defendant corporation and its directors are uixreasonably and wrongfully withholding the profits, piling them up, instead of distributing them, or distributing a portion of them, in the form of a dividend to the stockholders. The corporation was organized in the year 1894- with a capital stock of $300,000. For some time past the entire capital stock has consisted of about $275,000 of common stock and about $25,000 of preferred stock, as I recall the figures. The preferred stock draws seven per cent, annual dividends aixd is a sxnall factor iix the case, and the dividend has been regularly paid. The real question relates altogether to the claim that greater dividends should be paid and should have been paid for the year 1903-1904 on the $275,000 of common stock.
In 1894 the statutory law of New Jersey iix regard to the distribution of dividends by business corporations was quite different from what it is to-day. Counsel have not argued closely iix order to ascertain precisely what statute controls the situation of this corporation. Counsel for complainants claims that whatever statute applies, the distribution of a substantial dividend at least should have been made and should now be made by the decree of the court.
When the corporation was formed in 1894, undoubtedly the act which applied to it and regulated the distribution of dividends was the act of 1875 as amended by the act of 1891, and that act, the act of 1891, allowed the corporation to reserve from its annual profits for a working capital an amount not
■ In 1901 the legislature passed-the act to which I have referred, which expressly empowers a majority of the stockholders
We now come to the question whether, apart from the statute, a case is here presented in which a court of equity should intervene and take the place of the board of directors and order a dividend to be declared, create a debt due from the corporation to these stockholders as individuals, for which they can maintain actions. This work of examining the situation of a great business corporation owning large plants, mills and machinery, and with large business transactions on its hands, -by a court of equity, in order to find out whether dividends are being unfairly and unjustty and unreasonably withheld from the stockholders, is an exceedingly difficult task. Perhaps the rule has not been correctly formulated as yet, which controls the court of chancery in the exercise of its general equity jurisdiction apart from any statute, in endeavoring to perform this work. I am fully satisfied that where 'there is no charge of bad faith, no charge of fraud, but the charge is that the directors are unreasonably refraining from declaring a dividend, that it is unfair to the
I shall not undertake to discuss in this way without having the figures and tables before me which were prepared so fully by counsel and which were so helpful to the court, the minutice of the situation of this corporation in 1893 and 1894 and at the present time, but my conclusion is that no case is presented under the general equity power of the court in which an equity judge should intervene and direct the distribution of profits in the form of dividends to these stockholders, setting aside the action or determination of the board of directors. This conclusion, however, is based upon the view which I entertain of the condition of the corporation and its business in 1903 and 1904, which is the period during which the bill alleges the dividends should have been declared, and at the present time. An entirely different conclusion might be proper and might be the only proper conclusion one year or two years from the present time. In the case of Laurel Springs Land Co. v. Fougeray, 50 N. J. Eq. (5 Dick.) 756, Mr. Justice Garrison, speaking for the court of errors and appeals, indicates that under the general
On the whole case, however, especially keeping in view the expenditure in 1903 of $133,000 for the acquisition and equipment of the Saugerties mill, I do- not think that a point was reached when this bill was filed at which it became the duty of this court to intervene and compel this corporation to declare a dividend for the benefit of its stockholders.
I think I have now stated the more important considerations which have led me to the conclusion that this court ought not now to set aside the judgment of these practical managers of such ability who are conducting their business apparently with great success and direct them to make a. dividend, although, as I have heretofore intimated, an entirely different conclusion may be proper within a very short time.
The second cause of action set. forth in the bill is the claim, made on behalf of the corporation itself, that these managers have been appropriating larger sums of money for their compensation than is just and fair. The salaries amount now, under the resolution of the board of directors of 1904, to $29,000, more tiran ten per cent, on the common stock—nearly ten per
■ How, in this case the salaries have been fixed by the directors themselves—these three salaried agents who collect $29,000 per annum for their services and control the board of directors. They are three out of five directors. As I recall it, the fifth director, Mr. Raynolds, never qualified, and the fourth director is a mere dummy holding one share of stock in order to qualify.'
I have dealt now with the salary of the president and the treasurer, and my conclusion is that these salaries should be limited to the figures which were fixed in 1900, and which were practically assented to and accepted by Mr. Raynolds, the complainant. Before leaving this subject there is just one other matter that I meant to refer to briefly. The proofs on the part of the defendants to sustain their salaries do not seem to ine to include what they might have adduced. They fixed their salaries. Of course, they come here and swear that they think they are fair. They bring a single outside expert, a Mr. McEwen, who gives some testimony, and I shall not discuss his testimony at length, but I regard his opinion as of very little weight. It seems to me that the defendants might have brought other impartial experts who could have testified as to what managers of other paper companies have been receiving.
These are the conclusions which I have reached. In regard to the accounting for back salaries, I do not see that that question is presented for discussion. The bill was filed in May, 1904, within two or three months after the resolution of the board was adopted raising these salaries. The officers will be required to pay back to the corporation the excess over and above the figures that I have mentioned which they have collected. The salaries must be accounted for-—the excess paid—since the adoption of the resolution. The complainant was guilty of no laches. Very shortly after the adoption of this resolution in February, 1904, on April 18th, the attorney for Mr. Raynolds, as I recall the fact and the date, wrote a letter to the corporation distinctly protesting against the increase of salaries, and that protest was followed up in May, 1904, by the filing of the bill. The result, therefore, is that the officers will be required to account for the entire increase which they have received since the increase was made in February, 1904.
In support of the conclusions which I have endeavored to set forth, I refer to the following .New Jersey cases:
As to the question of a compulsory dividend: Fougeray v. Cord, 50 N. J. Eq. (5 Dick.) 185 (1892); S. C., 50 N. J. Eq. (5 Dick.) 756; Griffing v. Griffing Iron Co., 61 N. J. Eq. (16 Dick.) 269 (1901); Trimble v. American Sugar Refining Co., 61 N. J. Eq. (16 Dick.) 340 (1901); Stevens v. United States Steel Corporation, 68 N. J. Eq. 373.