405 Pa. 142 | Pa. | 1961
Opinion by
We are called, upon in these appeals to determine whether the defendants in a prior action brought by a shareholder are entitled to have the plaintiff in that action pay the costs and attorneys fees incurred by them in successfully defending that suit by virtue of the Act of April 18, 1945, P. L. 253, 12 PS §1321.
The prior action, Reifsnyder v. Pittsburgh Outdoor Advertising Company, 396 Pa. 320, 152 A. 2d 894 (1959), was a suit by a minority shareholder against the corporation whose stock he owned and against cer
Appellees claim that the appellant’s act of posting security for costs in the original suit and the lower court’s treatment of the former proceeding as a derivative suit are determinative of the issue before us. We do not feel that such factors are controlling. In determining whether a suit is direct or derivative the allegations of the complaint germane to the cause of action must govern. See 13 Fletcher, Cyclopedia Corporations §5911 (rev. vol. 1961), and cases cited therein.
The complaint filed by Reifsnyder in the prior action was divided into three major sections. The first section contained 21 paragraphs which set forth in great detail the circumstances surrounding the adoption of the contested resolution and the events subsequent to the adoption of the resolution. The second section contains a request that the court adjudicate and decree that, (a) the resolution to increase the in
If the complaint were limited to paragraph “1” of the second section we might be constrained to hold that the original action was derivative for the reason that an excessive payment by the officers and directors of a corporation in the course of making a corporate acquisition would constitute a harm peculiar to the corporation and would normally only be indirectly injurious to a shareholder.
However, the complaint is not so limited. Indeed paragraphs “a” through “k” of the second section of the complaint are explicitly concerned with the right of a majority shareholder to vote on a resolution in which he has a personal pecuniary interest — the right of the majority shareholder to vote on a resolution authorizing the purchase of all of his shares. It appears that this question, namely the right of a majority shareholder to vote on a resolution in which he has a direct pecuniary interest, was the gravamen of the complaint in the prior action.
We now turn to the question of whether this issue raised in the complaint was purely frivolous and thus merely a subterfuge attempting to disguise a harm to the corporation by alleging such a harm in the terms of a direct injury to an individual shareholder. Al
Corporate law in general, and the status of the minority shareholder in particular, is in a constant state of flux. New formulae and rules giving recognition to changing concepts of business morality and the needs of a dynamic and complex industrial society are continually being adopted by our legislatures and courts.
Since the complaint in the prior action is primarily concerned with the protection of such voting rights and since a shareholder may bring a direct action to protect his voting rights, the prior action must be classified as a direct action. Direct actions do not fall within the purview of the Act of 1945, supra, and appellees therefore are not entitled to reimbursement for their attorneys fees.
Orders reversed.
The Act of 1945, supra, provides tliat plaintiff shareholders who hold less than 5% of the outstanding shares of any class of stock may be required to post security for costs and attorneys fees which may be recovered by a successful defendant corporation in a suit brought by a shareholder to enforce a secondary right. This statute is similar to legislation enacted in a number of states to prevent the abuses involved in so-called “strike suits.” See N. Y. Gen. Corp. Law §61-b; N. J. Rev. Stat. §14:13- :15 (Supp. 1947). Tho New York Statute was upheld under the state constitution: Lapchak v. Baker, 298 N. Y. 89, 80 N.E. 2d 751 (1948), and the New Jersey statute, which is practically identical to the New York one, has been held valid under the federal constitution: Cohen v. Beneficial Industrial Loan Corporation, 337 U. S. 541 (1949). There are a number of significant distinctions between the Pennsylvania and New York statutes. We find it unnecessary, however, to rule on the constitutionality of the Pennsylvania Statute. See Reader, Suits Against Corporations, special commentary found at introduction to Volume 12 of Purdon’s Statutes §§1221-1820, for a detailed discussion of the Pennsylvania statute and for a comment on this type of legislation.
A representative action is a class action or a direct personal action brought on behalf of those “similarly situated.” Representative actions do not fall within the purview of the Act of 1945.
This allegation is undoubtedly the basis of the erroneous dicta in our prior opinion to the effect that the complaint was primarily concerned with a breach of duty to the corporation.
“If the injury is one to the plaintiff as a stockholder and to him individually, and not to the corporation ... a stockholder cannot sue as an individual.” 13 Fletcher, Cyclopedia Corporations, §5911 (rev. vol. 1961). The footnotes have been omitted.
See for example Sneed, The Factors Affecting the Validity of Stockholder Votes in Adverse Interest, 13 Okla. B. Rev. 373 (1960) ; Sneed, The Stockholder Hay Vote as He Pleases: Theory and Fact, 22 U. Pitt. B. Rev. 23 (1960) ; Sneed, Stockholder Votes Motivated By Adverse Interest: The Attack and the Defense, 58 Mich. B. Rev. 961 (1960). Note, Fiduciary Obligation of Majority Stockholders, 51 Vale B. J. 1034 (1942) ; Battin, Equitable Bimitations on Statutory or Charter Powers Given to Majority Stockholders, 30 Mich. B. Rev. 645 (1932).
See Vierling v. Baxter, 293 Pa. 52, 141 Atl. 728 (1928) ; Southern Pacific Company v. Bogert, 250 U. S. 483 (1919) ; Hyams v. Calumet & Hecla Mining Co., 221 F. 529 (6th Cir. 1915).
See for example the action taken by the court in Perlman v. Feldmann, 219 F. 2d 173 (2d Cir. 1955).
The right to vote is often considered a shareholder’s most fundamental right. See listing of shareholders’ rights, 13 Fletcher, Cyclopedia Corporations, §5717 (rev. vol. 1961).
There is no question that a shareholder may bring a direct action to protect his voting rights. See Webster Eisenlohr, Inc. v. Kalodner, 145 F. 2d 316 (3d Cir. 1944).