Shonnard v. Elevator Supplies Co., Inc.Shonnard v. Elevator Supplies Co., Inc.
Complainants, as stockholders of defendant, pray inter alia that this court adjudge and decree that the business of defendant has been and is being conducted at a great loss and greatly prejudicial to the interests of its stockholders, so that its business cannot be conducted with safety to the public and advantage to the stockholders, and that an injunction issue to restrain defendant аnd its directors and officers from exercising any of its privileges or franchises, and that a receiver be appointed for said defendant. The gist of the allegations of complainants’ bill is that defendant‘s business has been and is being mismanaged by its directors and officers. Complainants concede in their bill and argument that defendant is solvent. The defendant is a domestic corporation with an authorized capital stock of $2,000,000, divided into twenty thousand shares of a par value of $100 each. Seven thousand five hundred shares are classified as preferred stock, and twelve thousand five hundred shares as common stock. Twelve thousand three hundred and ninety-eight shares of common stock and five thousand two hundred and sixty-six shares of preferred stock are issued and outstanding. Its principal place of business is in the city
Considerable proof was tаken herein, much of which I deem unnecessary to refer to for the purpose of my determination of the matter sub judice. The following quotation from Madsen v. Burns Brothers, 108 N.J. Eq. 275 (at pp. 278, 279) I regard as applicable to the matter sub judice — “to grant the relief prayed by complainants herein (in view of the fact that the defendant is not insolvent) three statutory requisites must be clearly established — (1) that the defendant‘s business has been conducted at a great loss and greatly prejudicial to the interests of its creditors and stockholders; (2) that its business is being so conducted; (3) that its business cannot be conducted with safety to the public and advantage to the stockholders. Such statutory requisites must be clearly manifest in order to confer jurisdiction upon the court. Kelly v. Kelly-Springfield Tire Co., 106 N.J. Eq. 545.” The proofs herein do not establish the aforesaid requisites.
The bill of complaint was filed by complainant Shonnard in behalf of himself and all оther stockholders who might wish to join with him therein. At the inception of the hearing herein application was made for leave to amend the bill by adding thereto other complainants and an order allowing same was entered; thereupon counsel for the defendant, conceiving that this court was unauthorized to permit such amendment, appealed from the order therefor, whereupon this court stayed its said order so as to enable defendant‘s counsel to apply to the court of errors and appeals for a further stay pending appeal. Such further stay was
The burden is cast upon complainаnts to substantiate the essential allegations of their bill by clear and convincing proof. They have not done so. It appears to me that such losses as were experienced since the advent of defendant‘s present management cannot be ascribed to mismanagement, but, in great measure, to a stringent business depression suffered by business genеrally. Section 12 of the Corporation act provides that the business of every corporation shall be managed by its directors. The authority of the directors in the conduct of the corporation‘s business must be regarded as absolute when they act within the law. It is a well known rule of law that questions of policy of management are left solely to the hоnest decision of the directors of a corporation. Ellerman v. Chicago Junction Railways and Union Stockyards Co., 49 N.J. Eq. 217; Elevator Supplies Co., Inc., v. Wylde, 106 N.J. Eq. 163; Kelly v. Kelly-Springfield Tire Co., supra (at p. 554). A receiver will not be appointed for a corporation which is not insolvent, at the suit of minority stockholders, solely because of errors of business judgment of its board of directors, resulting in losses, in the absence of bad faith or abuse of power. City Bank Farmers Trust Co. v. Ringwood Co., 110 N.J. Eq. 525. The appointment of a receivеr is not a matter of absolute legal right. Sound discretion should be exercised by the court before any such appointment is made. Glaser v. Achtel-Stetter‘s Restaurant, Inc., 106 N.J. Eq. 150; Kelly v. Kelly-Springfield Tire Co., supra. I have in mind the admonition of Judge Baldwin, quoted in the oft-cited case of Citizens Coach Co. v. Camden Horse Railroad Co., 29 N.J. Eq. 299 (at p. 303): “There is no power, the exercise of which is more delicate, which requires greater caution, deliberation and sound discretion, and which is more dangerous in a doubtful case than the issuing of an injunction.” While said rule of law was declared with respect to the granting of a preliminary injunction, it is applicable also to the granting of a permanent injunction auxiliary to the appointment of a receiver in a case such as sub judice. The extraordinary
Complainants allege as an additional ground for the appointment of a receiver herein that they are aggrieved by action of the defendant‘s board of directors in voting dividends illegally. Such allegation is not only controverted in defendant‘s behalf, but it is urged in defendant‘s behalf thаt its directors were lawfully empowered to declare the dividends in question. Counsel for complainants, in argument, urged that the action of defendant‘s directors in declaring dividends “in the face of facts and figures as they appeared on the company‘s books” cannot be too seriously condemned. Perhaps condemnation, if such were to be regarded as censure, would be merited by the action of defendant‘s directors
Complainants allege as a further ground for the appointment of a receiver herein that through the instrumentality of defendant‘s board of directors a change was effected in defendant‘s charter and by-laws by eliminating therefrom provisions relating to cumulative voting powеrs given to defendant‘s stockholders, and that such action is inimical to complainants’ interests, and that the ostensible purpose of defendant‘s directors in making such change effective was to enable them to elect directors of their own choice. Complainants urge that the action complained of by them warrants the intervention of this court in the affairs of defendant by means of the appointment of a receiver for the defendant to
Complainants also allege malfeasance against defendant‘s board of directors. Not only have the complainants failed to substantiate such allegation, but I do not find a scintilla of proof herein upon which complainants may base such allegation. The cases of Shuster v. Ventnor Gardens, Inc., 103 N.J. Eq. 93, and Walker v. Walker Realty Co., 103 N.J. Eq. 300, are cited in behalf of complainants. The cases are inapplicable to the case sub judice. In the Shuster Case officers and directors of the corporation permitted the wrongful abstraction of corporate funds for the purpose of paying debts of other corporations, and therefore malfeasance was clearly manifest. In the Walker Case corporate funds were misappropriatеd by directors and officers of the corporation to their personal use, and therefore malfeasance was clearly manifest. No such condition prevails in the case sub judice. Our courts have repeatedly held it to be unwise, and against public policy, to seek an occasion for interference with any corporation so long as its officers and directors are striving
Counsel for complainants, apparently conceiving towards the close of the hearing of the case sub judice, that the proofs herein were insufficient upon which to obtain a writ of injunction and decree for the appointment of a receiver under the provisiоns of section 65 of the Corporation act, urged that the court should exercise its authority under the general equity powers of the court to grant to complainants the relief prayed by them. I am firmly of the opinion that the complainants are not entitled to the relief prayed by them herein, under either section 65 of the Corporation act or the general equity powers of this court.
I will advise a decree dismissing the bill of complaint, and the order to show cause based thereon.