*2
Bеfore MANTON, SWAN, and CHASE,
_
Judges.
Circuit
MANTON,
Judge.
Circuit
Appellant, a stockholder of 200 shares of
common and 400 shares of common B stock
of the American Tobacco Company, a New
Jersey corporation,
seeks
suits,
these
which have been consolidated,
enjoin
of an employees’
execution
stock subscrip-
plan approved by
the directors of the
corporation on
25, 1930,
by the
July
stockholders on
28,1930'.
joined
He has
as defendants with the company, tho Guar-
anty Trust Company, and Junius
Parker,
56,7.12
trustees of
shares of the common B
stock, and the directors of the American To-
Company.
bacco
These shares of stock were
among
distributed
tho directors and 527 oth-
er
the corporation,
and the re-
sought
lief
is the cancellation
shares
issued.
interposed
Pour defenses were
in tho an-
filed,
swer
and motion to strike out such
court,
contributions, compensation
in the exer- such
defenses was made.
services,
discretion,
cise
to entertain
otherwise.”
stockhold
declined
July
jurisdiction
ers
28, 1930,
passed
met
reso
of the bill for
reason
two
lutions,
involving change
capital
existed under the laws
held
the court
structure
au
company,
state
and it
of New
*3
thorizing
adoption
subscrip
of the domicile
was the
the
of
stock
this
of the
appeal.
change
appellant
capital
forum
structure
should
The
in
complaints
consisted in a
par
were dismissed.
of the
the
decrease
value of
stock
common
and common B
the
stock of
Company has its
Tobacco
American
corporation from
$25,
$50 to
an increase
and
its
principal
in
York City,
office New
where
shares,
the
of
authorized
in
ease of com
the
its
chief
are
where
executives
located and
shares,
mon stock from one to two million
keeps
meetings
board of directors hold its
and
and
the ease
common B stock from two
of
corporate
its
records.
four
shares.
also
to
provided
million
The resolution
sought
defenses which were
be
to-
voting power
pre
of the
the
(a)
stricken
are
appellant
out
the
failed
four
ferred stock be
increased
two to
comply
provisions
with the
of Federal
proper
votes
order maintain the
ratio.
Equity
(28
Rule
(b)
USCA §
Each
to receive two shares
stockholder was
the stockholders
the corporation,
of
includ-
stock,
B,
of new
common
for
common
or
ing
appellant, ratified
the
the action of the
outstanding
share
of old stock. There
board of directors in
allotments
the
526,997
preferred
on this date
shares of
the members of the board under
em-
the
stock, 778,548
1,535,-
common,
shares
and
of
ployees’
plan by
re-electing them to the
plan
of
B
shares
common
stock.
making
board,
eligible,
thus
them
for the ben-
approved
389,573 preferred,
a vote of
plan;
(c) that,
efits of the
since
action
620,268 common,
1,220,855
of
and
shares
attempt
regulate
anis
the internal affairs
common B stock.
were
There
voted
foreign corporation,
of a
the court below
1,995
thе resolutions 170
of common,
shares
jurisdiction;
should decline
(d)
to take
B,
pre
shares of common
and
shares of
compensation
amount of
paid
in-
to the
ferred stock.
appellees
dividual
was and is fair and rea-
sonable
virtue of the
January 28,
valuable services
held a
On
the directors
they
company, and,
have rendered to the
meeting
president
which neither the
nor
by-laws
under
of
corporation,
di-
president
vice
Penn
The board
attended.
right
rectors have the
fix
compensa-
adopted
providing
a resolution
there be
tion of
agents,
its
and the allotment
under
submittеd to the
a number
em-
was in accordance therewith as well ployees who,
opinion
board,
of the
as
accordance with
the statutes of New
should
considered
ersey.
J
stock, together with a statement of the serv-
ices
At
rendered
each and with
a
of the
an estimated
directors on
rating,
percentage
basis,
on
the value of
accordance with
p.
section
e.
compared
the services
company,
354 of the
(Comp.
Laws
Supp.
St.
department
key
184)
duly
each
with the
executive in
declared the advisa
bility,
department,
and the annual rate of
submission,
аnd directed the
compensation
of each
stockholders of
as of December
for
and
issuance
including
salary
compen-
common B
and other
employees
sale of its
all
stock to
and
actively
engaged
sation of
kind. The board recommended
those
in the conduct of the
business, way
determining
compensation
that'in
the individual allotments
for serv
ices to
gen-
Section
under
there
be used as
rendered.
should
e.
(Comp.
having
Laws of 1920
eral basis a number of
Supp.
shares of stock
183),
§ 47—
cent,
aggregate
empowers
equal
a New
per
pro
value
33Ys
carry
vide and
out a
paid
amount
or
following
for the
ac-
purposes: “(a) The
crued to such
purchase
individual for his services to
issue or.
capital
company
year
sale of its
and
calendar
and
all of
actively
that,
ability
“in
engaged
and those
view of
unusual
effi-
and
conduct of
ciency
George
its business
par-
Hill,
to trustees
President
W.
on
behalf,
ticularly
their
for such
connection with
sales as well as
general oversight
in installments
supervision
at one
with or
without
and
of all
to vote
pending payment
thereon
the activities
and its sub-
aiding any
therefor in full,
ability
and for
sidiaries,
such em
view the unusual
ployees and
persons
efficiency
in paying
said
Charles
Vice-President
deducting
charges
management
after
manufactur-
all
with the
A. Penn in connection
taxes,
$43,294,769.
Company,
Board rec-
amounted
It
this
ing activities of the
dividends
common
George
$29,294,-
on its
stock of
W. Hill
that the said
ommends
in 930,
with
dividend of
given recognition
$1
on the
an extra
Charles A. Penn he
quarter of
rating
1933. The total
value
first
dividends
basis of
on
common stock
latter
ex-
corporation, as indicated
for tho
their services to
preferred
$28,300,000;
stock,
ceeded
to.”
hereinabove referred
on the list
gov-
$3,161,982.
paid the United
States
meeting,
As а result
there
ac-
$150,000,000
ernment
in 1930.
taxes
including
employees,
corded
figures give
gigantic
These
some idea
right to sub-
who
active
problem confronting
engaged in
those
par value
of shares
scribe to number
management
company’s
active
affairs.
upon the terms
conditions described
*4
It has had
commercial success.
most unusual
re-
agreement
company, the
an
between the
by
ap-
The services rendered
the individual
were
trustees who
spective
and the
pellees
extraordinary
unique.
and
have been
agree-
agreement.
the
Under
named
the
de-
ment,
could not bе
the slock certificates
April 1,
meeting
On
the
1931,
of
purchase
the
the allottee until
livered to
stockholders, the
were
in
re-elected,
should
price,
interest accrued thereon
dicating
all
a renewed
of
those
confidence
any event,
paid
full,
should
and,
charge
January 28,
On
participant
after
until
1931,
he delivered to the
publicly
through'
it was
announced
the
31,
If
December
1931.
before
newspapers
the directors had voted to
any
of
employee
the
the connection of
56,712
company’s
date
allot
shares of
common
the
with
discharge,
severed
company
stock, pursuant
should
B
authority
to the
conferred
by resignation,
the
cause, or
then
without
plan.
them under the
12,
On March
power to cancel forthwith
trustees had the
1931, each stockholder of record received a
agree-
right
employee
had under the
statement relative
showing
to the
the
delivery of
stock.
ment for the
the
president
amount of shares allotted to the
presidents,
specifying
vice
five
Company,
American
The
Tobacco
amount
allotted
various 535 em
Supreme
of
the United States
decree
ployees.
statement
The
also advised the
disintegrate.
Court,
ordered
United
was
operation
stockholders of the
XTI
article
Co.,
v. American
U. S.
States
Tobacco
by-laws,
which
adopted by
had been
632, 55
Ed.
Those
31 S. Ct.
L.
663.
company
13, 1912.
Rogers
on March
See
companies
permitted
to continue
Hill
A.)
decided this
decree were estimated to have at
under the
day.
public notice, meeting
After this
per
cigarette
time 37.11
cent. of the
April
appellant gave
was held. The
However,
States.
business
the United
be
public
opposition
plan,
notice
to the
competition,
tween 1912 and
due to
inviting
join
others
him in
opposition,
dropped
percentage
per
to 21.81
In
cent.
and at
nominated
candidate
December,
appellee,
Hill, became
director
Mr. Hill. He voted for
company.
man
Under his
except
all the directors
Mr. Hill. The direc
agement,
co-operation
and in
with Vice"Presi
tors were
varying
re-elected
a vote
board,
dent Penn and the
rest
most
2,615,973.
2,608,201
opposition
can
employees of
whom were
new
company, a
31,980
didate received
votes. There were at
policy
inaugurated in
depart
was
all the
approximately
40,000
time
stockholders
change
policy
Thе result
ments.
company.
operation
of the business made the Amer
argues
Appellant
Company
(a)
cig
ican Tobacco
the leader
in the
directors’
participation
industry.
illegal
In 193.1
ah
arette
increase
the total
initio;
(b)
that under the
the stock
was
cigarettes
sales over 1929 of
of all kinds
issued for
to be rendered,
and this
country
in this
approximately
was
half a
unlawful,
because
stock
a New Jer-
billion. The increase in the sale of the com
sey corporation
lawfully
can be
issued
pany’s
popular
most
brand, “Lucky Strike,”
for the
amount that
actual-
nearly
was
six billions. Thе business is
ly paid
performed;
(c)
for labor
that the
scope,
world-wide in
many factories,
with
per
$25
sale to the directors
share,
organizations
branches, and
in all parts of
selling
exchange
whereas
on the
country.
company
this
in 3930 expend
per
share.
$112
market
$20,400,000
advertising.
ed
year
In that
cigarettes
(a), ample
given
it sold 38.10
notice
pro
As
earnings,
participation
duced
United States.
Its net
the directors’
Guaranty
agreement,
Trust
under the
New Jer-
tees
respective amounts.
and their
Company
a share for each
p.
share
§
sey
(Laws
c.
statute
183]),
stock so delivered
Thus the American
to it.
Supp. N. J.
[Comp.
Company
for the
received
value
such Tobacco
its terms
quoted above,
within
includes
company during
entire
stock. The
contem-
intended
as was here
part
received services which were rendered in
plated.
agreement
had to be
in cor
recognized that
long
been
has
al
it was
delivered
whom
where directors
porate transactions,
statute authorizes
lotted
under
interest,
the stockholders of
being paid for in
be issued
without
ratify
their
power to authorize
full
* * *
language is,
issue
full. The
“the
is dis
of an interest
if the existence
acts
in install
such stock
Hodge,
Corp. v.
Steel
States
closed. United
or without the
or at
with
ments
1, 60 R. A.
Eq. 807, 54 A.
L.
64 N. J.
payment there
pending
vote thereon
Eq. 399,
67 N.
Co.,
Dominion
Pierce v. Old
Co.,
Morgan
Bon Bon
full.”
for in
Drug
Oil, Paint &
319; Lillard v.
58 A.
Grape
222 N. Y.
N. E.
Vineland
254,
U9
manage-
tion. This was a matter of
partake
intеrnal
contract, to
maturity of his
the
word,
corporation’s
In a
ment
the
affairs.
profits of
contemplated
insurance
the contract
Moreover,
allegation
there is no
in the
service to
faithful efficient
setting
complaint
forth a demand
employee.
reward
corresponding-
and a
action,
stockholders to take
rea
nor are there
clearly praiseworthy
Such
contract
prior
sons stated to excuse
failure
par-
viewpoint
both
its motives
Equity
the institution of these suits.
Rule
clear-
repurchase was
option
ties, and the
(28
723)
“Every
provides:
USCA
bill
em-
encourage
stay of
ly
included to
brought
one or
more stockholders in
em-
of his
period
ployee to the end
and oth
per-
In view
fact
ployment.
parties,
rights
er
founded on
none
work
option would
formance
properly
corporation,
asserted
Mis-
courts of
condemned
results
* * *
particu
must
forth with
also set
souri,
impairment
damage
creditors,
viz.,
larity
plaintiff
the efforts
secure
to'
financial inter-
jeopardy to
capital,
part
such action as he desires on the
party,
follows
ests
interested
managing
and,
or trustees,
if nec
implied
clearly
within
the contract
essary,
shareholders,
causes
corporation.”
powers
action,
or the
of his failure
obtain such
making
reasons for not
such effort.”
may have been
The fact that
open market
higher price
the!
selling at a
complaint
allege
does
a demand
subscription
employees’
does
brand
letter,
directors in
form
of a
was issued
The stock
fraudulent.
refusal
directors to take
action
recognition
services
efficient
twenty-day
within the
period fixed
thereon
promise
rendered and the
been
which had
plaintiff.
remedies,
But there were
not neces
future.
It was
like
company/,
within
oрen
which were
*6
validity
plan that the stock
sary
to the
plaintiff
aas
stockholder under
laws of
appel
first
offered
to
it
allotted under
be
Jersey.
New
company.
any
lee
other stockholder
or
(a)
175, p.
Section
c.
357 of
Laws
only
applies
statutory right to such offer
The
(Comp.
Supp.
185)
St.
of 1920
§
N. J.
is
stock
at the time the
for cash
to an issue
* *
*
provides
“any plan adopted
em
under this
allotted
sold, whereas stock
may
recalled, abolished, revised,
be
amend
trustee, was
passed first
ployees’ plan
to
changed
ed, altered or
in
manner
the same
pursu
lawfully issued
and
cash,
in
for
provided
adoption.
as is herein
*
for
its
chapter 175
”
Laws of 1920
* *
ant
to
(b) If
desire
the stockholders
Supp.
(Comp.
seq.).
§ 47 — 183
St.
et
any change
respect
corporate
with
af
to
fairs, any
may
such
three
stockholders
call
allotment of
The
the stock under the
purpose
for that
even
without
authorized
99.99
was
calling upon the directors to take such ac
person
by proxy
represented
or
stock
at
185, p.
(2
tion. Laws
c.
292, 46§
meeting.
stockholders’
This overwhelm
Comp.
p. 1620,
46).
St. N.
ing
ap
little to be
leaves
vote
desired
Vanderbilt,
F.(2d)
v.
45
Watts
968
management
proval of the internal
Holly
v.
Products,
Stone
Hill
Fruit
сorporation by
this
affairs of
its stockholders.
554
5).
fraud,
alleged
actual
is
where
not
and
fraud,
appellee could
established,
The
constructive
asserted these
-
lapse
corporation
rights.
interfere. The
of time since the
should
had
was
courts
encourage
right
employees; approved
aid and
and the stock allotted thereunder
to
performed by
directors and stockholders
the services
the board of
the allottees
and
good
policy.
selling
ample.
Case,
business
In
it
deemed
court
Stone
minority
right
(which
on the market
have a
of the stock
to have the
sаid: “The
always subject
fluctuation)
justify majority
will not
their judgment,
to
exercise
and to ex-
honestlj'-
allegation
fraudulently,
insufficient consideration
and not
it
but
ercise
amounting
right
to fraud. The
to have
their
re
substitute
have no
court
charge
major-
those
of its internal
and wishes for those of the
what
own ideas
ceived
any
be
as its
val
refusal of
ity,
to
sufficient
advance
affairs deemed
and
had the
em
and
majority
to select
to hear
the matter at
ue. The
decide on
directors
judgment,
Minority
may
who, in
ployees
their
were entitled
not
issue.
emergency
apportion
and
ask
under
sadden
to benеfits
court
absence
respective rights
management
subscrip-
tlieir
them
interfere
equity
they
earnestly
their
until
it,
derstand
undertaken
construe
New
unsuccessfully sought
Jersey
and
redress from the
statute and
merits
decide
Directors,
appropriate
and
Board
where
controversy
validly
that the stock in
is-
meeting,
un
also
the stockholders in
sued. From this conclusion I dissent.
less
can show
for not
sufficient reasons
175, p.
(chapter
statute
implied
provisions
doing so. This is
in the
[Comp.
Laws 1920
Supp.
J. §
St.
N.
Equity
(28
723).
For
USCA §
Rule
seq.]), pursuant
47—183 et
which the
respect
defect
a bill will
dismissed.
stock
question purports
distribution
Co., 235
Wathen
Jackson Oil & Ref.
U. S.
part
have been made, reads in
as follows:
35 S.
59 L.
Corbus
Ct.
Ed.
Any
“1.
under
formed
Mining Co.,
v. Gold
187 U. S.
23 S. Ct.
any
law of
may,
this State
such terms
Oakland,
47 L.
Ed.
Hawes
and conditions as
determined
827; Dimpfel
Ed.
v. Ohio
U. S.
L.
designated, provide
manner hereinafter
and
& Miss. R. R.
S.
S. Ct.
U.
carry
plans
out a
or
for
or all of
121; Memphis Dean,
Ed.
L.
Wall.
following purposes:
page
at
L. Ed.
“(a)
purchase
The issue or the
sale
general
complainants
averment
capital
of its
em-
all of
or
objected
had
not meet
does
ployees
actively engaged
in the con-
those
particular
requirements
the rule.
duct of its business or to trustees on their
alleged
There is
dominance of
board
behalf,
stock in in-
such
of directors
the stockholders
those
stallments or
time with without the
personal
whose
interests
-adverse
are
right to
pending
vote thereon
payment there-
sought by
relief
make
the bill
as to
it
aiding any
full,
and for
em-
evidently
expect fair
futile to
consideration
ployees
persons
said
paying
* * * ”
within the
contributions, compensation
majority
Unless the directors were
stock-
services,
Comp.
Supp.
or otherwise.”
duty
holders,
appellant
183(a).
N. J. § 47—
go
adequate
show
rea-
Any
“2.
privileges
powers
why
respect
son
action in that
would be fu-
grantеd
hereinbefore
may be exercised in the
tile. Here
directors were
following:
manner
or, indeed,
in control of the
By
“(a)
including appropriate
company.
clauses
*7
original
therefor in the
incorpora-
articles of
Courts seldom interfere in the con
by-laws
or
at
organizing
trol of the internal affairs
corporation,
of a
except
guilty
where the directors are
mis
“(b)
Where the
has been
equivalent
trust,
conduct
to a breach of
or
formed without the
by-law
said charier or
relationship
where
stand in dual
a
s
provisions the board of director shall first
unprejudiced
prevents an
of judg
exercise
plan
plans
formulate such
pass
a
only
ment,
then,
rule,
aas
after an ap
declaring
resolution
opinion
in its
plication to the.
showing
stockholders or a
adoption
is advisable,
thereof
and shall call
opportunity
that there was no
ap
for such
meeting
to,
a
the stockholders
take action
plication.
Copper
Amalgamated
United
Co. v.
thereon.
stockholders’ meeting
shall
pper Co., 244
U.
Co
S.
37 S. Ct.
upon
by-laws
such notice as
held
provide,
509,
the directors had
Admittedly
solely
plan, there
it is
of con
439.
a matter
a formulated
the stockholders of
power to
question.
expediency.
Lack of
power
stock in
venience
to issue the
no
most
brothers,
court
render
effective
the reason
my
an
decree is
Assuming, as have
assigned
juris
controversy,
take
frequently
for refusal to
should cоnsider the merits
present
improperly dismissed. diction. No
obstacle is
I
the bills were
think
plaintiff
ease at bar.
its dis
the court below abused
Whether
defendants,
putative holder
including
declining
to exercise
admitted
cretion
canceled,
sought
are citi
of the stock
citizenship
jurisdiction
diversity
based on
likely
zens
York.
It is
Ample
matter not
au
free from doubt.
domiciliary
so well
ob
courts
fare
would
thority may be
view. Cita
found
either
necessary par
taining 'jurisdiction over the
posi
favor of
the District Court’s
tions
Corp.,
Berendt v. Bethlehem Steel
ties. See
giv.en
among
opinion;
eases
tion are
con
Eq.
108 N.
A.
opposite
fol
pointing to an
conclusion the
persuasive to
which-
most
sideration
seemed
lowing
cited:
American
Creosote
the court below
determination
Inc.,
v.