Summerlin v. Fronteriza Silver Mining & Milling Co.

| U.S. Circuit Court for the District of Western Texas | Feb 6, 1890

Pardee, J.

1. Complainants sue on a resolution of the board of directors of'the defendant company allotting to them individually, as charter members and incorporators, a number of shares of stock (to complainant Summerlin, 13,000; to complainant Luptoh, 15,000) of the defendant company, which stock they allege has been wrongfully converted and issued to other parties. The company, C. E. Lyman, and George M. Wakefield are made parties defendant to the bill. The latter has not been served, nor has he entered an appearance. The defendant company and C. E. Lyman jointly and severally demur to the bill, assigning as the grounds therefor that on the face of the bill the court is without jurisdiction; that the bill is without equity; that there is a deficiency of necessary parties defendant, and a misjoinder of parties complainant. The bill shows that complainants and certain other persons, in the year 1885, agreed to organize a corporation for the purpose of operating mines and mining property; and that afterwards, on or about August 31,1886, the complainants and five others formed and organized a corporate body under the laws-of Colorado, known as the “Fronteriza Silver Mining & Milling Company,” the present defendant; that subsequently, in September of the same year, the members of said corporation adopted a code of bylaws, (the act of incorporation and the code of by-laws being attached to the bill as exhibits,) and elected officers; that thereafter it was agreed at a regular meeting of said corporation (meaning, of course, the organizers aforesaid) that the capital stock should be allotted and divided, and it was allotted and divided, by a resolution of the board of directors, (presumably the organizers aforesaid,) among the different members of the corporation, reserving, however, about one-third of the shares for the purposes of the organization; that afterwards the corporation, through its officers and agents, (presumably the other members of the organization,) represented to complainants that certain investments in the silver mine would he made if investers were allowed representation on the board of directors, and thereupon complainants were requested to resign their positions as directors on a promise that their interests would not be jeopardized, but would remain the same, upon which terms and representations of the officers and agents of said corporation complainants did resign from the board of directors; that thereafter complainants were denied knowledge Of the affairs of the corporation, and were excluded from the meetings, which were secretly held; and that, at a meeting held some time in October, 1887, without notice to the complainants, a re-election of officers was held, and a new distribution and reallotment of stock was made, in which the original allotment or distribution was disregarded, ■set aside, and held for naught, and in which distribution complainants were allotted nothing; that all the shares of stock of the said corporation, including that which belonged to complainants, were issued and disposed of to other members of the corporation, and particularly to G. W. Angle, president, R. H. McCracken, superintendent, and C. W. Ogden, attorney, in violation of complainants’ rights; that they at divers times had demanded their shares of slock, which, although the officers and agents were able to deliver, has been persistently refused by said officers and agents, who still refuse to deliver the same, but continue to hold, use, and enjoy the same; that the corporation, through its board of directors, has misappropriated and misapplied the shares of stock allotted to complainants by increasing the original allotment to other members of the corporation, and by making' distribution to others who are non-stockholders in said corporation. The wrongs suffered by complainants, as set forth, seem to have been committed by the other promoters, incorporators, and charter members; and all advantages and benefits arising from such wrongs seem to have been secured by them. It is difficult to see how the company took any part, save as a victim, in the alleged wrongful acts. The company, as a company, is not alleged to have made any contract with complainants, and apparently has no interest in the •personnel of the stockholders. The resolution of allotment, which is the basis of complainants’ demand, was manifestly a collateral arrangement on the part of the incorporators, who controlled all of the stock of the corporation, as none had been issued in a regular way, and who were acting, apparently, regardless of the company’s interests; and, whatever its binding effect upon the parties thereto, it is difficult to see how it is binding on the company, riee Joslin v. Stokes, 38 N. J. Eq. 31; Parsons v. Howard, 2 Moods, 1. However this may be, it would seem that, if the company is bound to the complainants, in an action to enforce the agreement, and to recover the stock allotted, the parties who manipulated the company to complainants’ injury, and who received and now hold the stock in controversy, should be made parties to the suit, or good reason given for not making them parties.

2. Mffdlc the complainants’ causes of action arise at the same time, and under the same resolution, it does not appear that the complainants have any community or privity of interest. Complainants are not stockholders of the defendant company. It is because they are not stockholders that this suit is brought. Each complainant is suing on his individual right, for the enforcement of a separate contract. The bill does not show any privity in the consideration. Each complainant’s case stands on a different footing, and- requires separate proof. The diligence of one cannot advantage the other. The failure of one could not in any way affect the other, except beneficially. The company’s defenses may be different, requiring different proof. A release by one complainant would not defeat the other. Perhaps the cases are such, and boar such relation to each other, however, that under section 921 of the Revised Statutes they might be consolidated, conformably, to the usages of the court, for the purpose of avoiding unnecessary costs and delay; but in such case it would seem that such action would be warranted only on motion of the defendant.

• 3. While the bill, on its face, appears to be for a specific performance of a contract for the delivery of stock, yet the bill shows that the defendant company has already issued the stock, has no stock to issue now, and, in short, that there can be no specific performance. The prayer for relief is made to cover such a state of facts, and is for the delivery of the shares of stock, and if that cannot be done, — and the bill alleges it cannot, — then for a decree for the value of the stock, and the dividends, declared thereon. The case seems to be similar to the case of Lacombe v. Forstall's Sons, 123 U.S. 562" court="SCOTUS" date_filed="1887-12-05" href="https://app.midpage.ai/document/lacombe-v-forstalls-sons-92069?utm_source=webapp" opinion_id="92069">123 U. S. 562, 8 Sup. Ct. Rep. 247, which was a suit to recover certain pledged bonds alleged to have been wrongfully disposed of, and wherein the court said:

“It is clear that the complainants, when they brought this action, knew very well that they could not have the relief asked for in the first part of their claim, because by their own indorsement of the bonds they had been transferred, under valid sales, to numerous persons, who either held them as innocent purchasers for value, or had parted with them to others, who held them in the same character. Their only efficient prayer for relief, therefore, was for a decree against the defendants for the value of the bonds, which they now insist must be estimated as of the time of the decree. The first objection to this relief is that it is simply what they could recover, if they could, recover at all, in an action at law. -It is the damages which, on their theory, are due for an unlawful conversion of the bonds. * * . * We see no reason why a court of equity should be resorted to for this remedy; nor is there anything in the nature of the transaction, since no actual fraud on the part of Forstall’s Sons is proved, why an action at law should not have been the appropriate one to recover these damages. The case is by no means a complex or difficult one. The facts are few, and easily proved. The transactions are open, and patent to everybody, and an action at law would afford complete and ample remedy for the wrong complained of.”

In the present case, the bill seems drawn on the theory that there is a trust relation between the complainants and the defendant company, because they rendered services in the organization of the corporation, and the company agreed to give them shares, whereby the company not only became their trustee as stockholders, but in some way became, their trustee for certain specific shares, which entitles them to an accounting by the company of the disposition, sale, dividends, and proceeds of said shares. It is sufficient to say to this that the complainants are not stockholders of the defendant company; that it is very doubtful whether any other trust relation exists between them and the company; that the contract calls for no certain shares, and such an accounting appears to be impracticable, if not absolutely impossible. Complainants’ whole cause of action seems to be that the contract to give them shares was violated, and that they have been damaged thereby; and their right to recover, if they can recover at all, seems to be limited to a money decree, making a case where a complete remedy at law can be had, for the damages can be as well ascertained at law as in equity. See Buzard v. Houston, 119 U.S. 347" court="SCOTUS" date_filed="1886-12-13" href="https://app.midpage.ai/document/buzard-v-houston-91762?utm_source=webapp" opinion_id="91762">119 U. S. 347, 7 Sup. Ct. Rep. 249, and the cases there cited.

There is nothing in the bill, save the statement making him a party, that affects in any way defendant Lyman. He is not alleged to have been a charter member, incorporator, promoter, nor to be a stockholder, nor to have participated in any way in doing the acts which are the basis of complainants’bill. No relief is asked against him. It is not easy to see why he was made a party.

The demurrer should be sustained, for that there is a misjoinder of complainants, a deficiency of necessary parties defendant, and the complainants have a complete and adequate remedy at law, and, as to defendant Lyman, because ibe bill makes no case whatever against Mm.

Maxey, «L, concurs.