111 N.J. Eq. 94 | N.J. Ct. of Ch. | 1932
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 and 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 *96
of Hoboken and it employs approximately three hundred and fifty people. It controls by stock ownership the Canadian Elevator Equipment Company, Ltd., of Canada. The owners of upwards of twelve thousand shares of defendant's stock oppose complainants' present endeavor to have a receiver appointed herein. Defendant admits that for several years prior to its present executive officers and directors being placed in charge of its management its business was operated at a substantial loss, but attributes such loss to incompetency of its previous executive officers of whom complainant Shonnard is alleged to be one, and to incompetent management of its previous board of directors of which complainants Shonnard, Sims and Rowntree are alleged to have been members. The proofs herein manifest that the person who was elected vice-president and general manager of defendant on May 19th, 1930, and as president on September 24th, 1930, is by training and education a mechanical engineer who has been practicing as such for upwards of twenty-two years, and who previous to his association with the defendant had a business experience which well fits him for rendering capable service to the defendant. Since his official connection with the defendant various changes were effected which he and those associated with him in defendant's management considered conducive to the well-being of defendant and for advancing the interests of its stockholders. Some of the changes effected resulted in a substantial reduction in overhead expense and operating costs. The grievances and criticism which complainants apparently considered themselves warranted in urging against the ways and means resorted to in the conduct of the business of the defendant during the administration of its former president and board of directors, resulting in the losses hereinabove referred to, cannot reasonably be ascribed to the conduct of defendant's business since the administration of the board of directors and executive officers now serving the defendant. The proofs herein demonstrate that the defendant's present directors and executive officers are capable and experienced business men, all of whom are striving to the best of their ability to prosper the defendant. *97
Affidavits of officers of the defendant filed herein express optimism for the betterment of the business affairs of the company in the near future, and evidence that as a result of economies effected since the advent of defendant's present directors and executive officers a considerable saving has resulted, and in future will inure to defendant's benefit. Items manifesting such economies and saving are mentioned in numerous affidavits filed in defendant's behalf, among which are affidavits of President Smith, and of director, secretary and treasurer Brent; also affidavit of William H. DeVeer — cashier of the First National Bank of Hoboken, the depository of the defendant. Considerable proof was taken 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,
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 that 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 *101
if complainants' allegation were true, but such condemnation or censure may not carry with it the taking of the management of defendant from its directors by means of a receiver appointed by this court. Section 30 of our Corporation act (P.L. 1896p. 286, as amended by P.L. 1904 p. 275) authorizes directors of a corporation to make dividends only from the surplus of a corporation, or from the net profits arising from the business of a corporation. Liability for violation of such section of the Corporation act is enforceable at any time within six years after unlawful payment of dividends at the suit of stockholders against the directors. Fleisher v. West Jersey Securities Co.,
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 powers 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 *102
supersede defendant's present board of directors. Complainants' claim in such respect is untenable. If the fact be as alleged by complainants they have an adequate remedy at law for the redress of such alleged grievance, and this court should not in the casesub judice assume jurisdiction to determine the facts and the respective rights of complainants and defendant with respect thereto. Apparently counsel for the complainants appreciates the weakness of complainants' claim in such respect, and that this court may not question the legality of the action complained of, because counsel has stated in argument of complainants' cause: "We realize that a court of equity has no jurisdiction to test the legality of election of officers or directors; that the jurisdiction as to this question resides in the supreme court." Furthermore, this court will not presume that defendant's stockholders, when duly convened, will not exercise their voting rights in a manner which in their judgment will be conducive to the best interests of the corporation. Dvorin v. Greenberg,
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.,
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 provisions 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. *104