Memphis & C. R. Co. v. Wood

Decision Date12 December 1889
Citation88 Ala. 630,7 So. 108
CourtAlabama Supreme Court
PartiesMEMPHIS & C. R. CO. ET AL. v. WOOD ET AL.

Appeal from chancery court, Madison county, THOMAS COBBS Chancellor.

Humes, Walker, Sheffey & Gordon, for Memphis & C. R Co. R. C. Brickell, for East T., V. & G. Ry Co. John W. Weed and John M. McKleroy for Wood and others.

STONE C.J.

This suit was commenced October 27, 1887, and is prosecuted by stockholders of the Memphis & Charleston Railroad Company, representing a minority of the stock. The case was submitted in the court below on a demurrer to the bill, and on a motion to dismiss it for want of equity. From the chancellor's decree overruling the demurrer, and refusing to dismiss the bill, or to dissolve the injunction, the present appeal is prosecuted. Coming before us in this form, we must treat as true all the averments of the bill which are well pleaded, and in the further progress of this opinion they will be stated as facts.

The Memphis & Charleston Railroad was constructed under charters obtained from the states of Tennessee and Alabama, and extends from Memphis, in Tennessee, to Stevenson, in Alabama, running partly through Mississippi. One hundred and fifty miles of the track are in Alabama. The entire length of the road is not shown. The capital stock is $5,312,725, divided into 212,509 shares, of $25 each. Of these shares, 106,261, being a majority of the whole number, stand on the books in the name of the East Tennessee, Virginia & Georgia Railroad Company, another corporation, which does not connect with or touch the Memphis & Charleston Railroad at any point. The complainants hold 8,800 of the shares, representing $220,000 of the capital stock; and they sue in their names, and in the names of such other of the stockholders as may join in the suit. The Memphis & Charleston Railroad has been in operation for a third of a century. The profits of the corporation, if any, prior to the time of its passing under the control of the East Tennessee, Virginia & Georgia Railroad Company, hereafter shown, we have no certain means of ascertaining, further than that from June, 1858, two years after the completion of the road, to June 1861, the net earnings were never less than 10, and once as high as 16, per cent We have no account of any earning during the civil war, from 1861 to 1865, and suppose not only that there were no net profits, but the cessation of hostilities left the road very much out of repair. Extraordinary expenditures became necessary to repair and equip the road, and up to June 30, 1867, the expenditures exceeded the receipts. Between the years ending June, 1868, and June, 1874, surplus profits, amounts not shown, were earned by the road each year, except the two years 1871 and 1872. The sum of the deficiency for these two years was about $150,000. The East Tennessee, Virginia & Georgia Railroad Company obtained its charters from the states of Tennessee and Alabama, and had been many years in operation. It extended easterly far beyond Knoxville Tenn.; and having absorbed, or otherwise obtained control of, the Selma, Rome & Dalton Railroad, an Alabama corporation, extended, in a south-westerly direction, 150 miles or more into Alabama, terminating at Selma, in this state. It also operated a line which touched at Chattanooga, in the state of Tennessee, eastward from Stevenson, and distant from it 25 or more miles. There was, however, a connecting line between the respective termini, but it belonged to another railroad corporation. The East Tennessee, Virginia & Georgia Railroad Company had probably many other extensions and connections, not necessary to be noticed here. The extent, distances, and connections of the East Tennessee, Virginia & Georgia Railroad Company are stated partly on general knowledge. About 1874, one Wilson was elected president of the Memphis & Charleston Railroad Company, and was continued in the office until 1881. His election was procured through the instrumentality of the East Tennessee, Virginia & Georgia Railroad Company, and, although not exactly coterminous, the two railroads have been operated substantially under one management ever since. In the first instance, the Memphis & Charleston Railroad was let by lease to the East Tennessee, Virginia & Georgia Company; the rent agreed on being the net income of the former road above expenses. In a suit instituted for the purpose of testing the legality of that lease, it was set aside as being ultra vires. Another suit, between the Knoxville & Ohio Railroad Company and the East Tennessee, Virginia & Georgia Company, to which the Memphis & Charleston Company was not a party, resulted in the acquisition by the East Tennessee, Virginia & Georgia Company of a large volume, nearly one-half, of the shares of stock in the Memphis & Charleston Railroad Company. Later acquisitions placed a majority-a bare majority-of the entire stock of the latter company in the name and asserted ownership of the East Tennessee, Virginia & Georgia Company.

The bill insinuates that each of the two suits named above was collusive, at least in part; and facts averred point in that direction. It is also averred that certain shares of the stock which were held by the Memphis & Charleston Company in its own right were transferred by the common president of the two companies to the East Tennessee, Virginia & Georgia Company, without any authority therefor. Marked bias and partiality in favor of the latter company are charged to have prevailed in these transactions; and it is also charged that the East Tennessee, Virginia & Georgia Company was without the power to acquire and own stock in another railroad company. It is expressly charged that the intent and purpose of the said purchase of stock was to give to the East Tennessee, Virginia & Georgia Company a controlling vote in the management of the Memphis & Charleston Company; and the exhibit taken from the record of the suit with the Knoxville & Ohio Railroad Company, if correctly set forth, proves this charges to be true. The bill further charges that after the agreement of lease noted above, which was in 1877, the two railroads have been operated under one and the same president, and under one and the same management. Inequality and fraud are charged in the combined management of the two roads, greatly to the profit of the East Tennessee, Virginia & Georgia Company, and to the equal detriment of the Memphis & Charleston Company. The bill makes specific charges of partiality and maladministration, as follows: First. When the East Tennessee, Virginia & Georgia Company acquired controlling power over the Memphis & Charleston Railroad, the repair-shops of the latter had been partially destroyed, but could have been rebuilt at a small expenditure. They were not rebuilt. The rolling stock of the Memphis & Charleston Company was carried to the shops of the East Tennessee Virginia & Georgia Company, at Knoxville, Tenn., "where the repairing was done at extravagant prices, and mileage was charged for all the distance the rolling stock was carried over the road of the East Tennessee, Virginia & Georgia Railroad Company." Second. "The rolling stock [of the Memphis & Charleston Company] was unnecessarily increased, at exorbitant cost, [$500,000 at one time,] and was used by the East Tennessee, Virginia & Georgia Railroad Company upon its own road, without any compensation" to the Memphis & Charleston Railroad Company for such use. Third. "The Memphis & Charleston Railroad was renewed with steel rails, iron bridges, and ballast, in advance of the needs of the railroad, to keep down the apparent net earnings." Fourth. "Less than the pro rata mileage share of through passenger and freight receipts from passengers and goods passing over both roads was allowed to the Memphis & Charleston Railroad Company." The bill then proceeds to show, by tabulated statement and otherwise, that the percentage of net earnings, compared with the gross income of the Memphis & Charleston Company, was much less than that of the East Tennessee, Virginia & Georgia Company, while the former was more favorably circumstanced for cheap operation than the latter. The bill charges that at the election of officers of the Memphis & Charleston Company, held in November, 1886, the East Tennessee, Virginia & Georgia Company succeeded in electing seven of its own directors to be directors of the Memphis & Charleston Company; seven being a majority of the board. The directors then elected Thomas to be president of their board; he being at the same time president of the board of directors of the East Tennessee, Virginia & Georgia Company. The two railroads were thus placed substantially under one and the same government. As we have said, the bill in this case was filed on the 27th day of October, 1887; and it charges that another election of directors would be held on the 17th day of November then next ensuing,-21 days after the filing of the bill. It charges, further, that "if said East Tennessee, Virginia & Georgia Company, its directors, or any person on its behalf, shall be permitted to participate, or take any part, in said election, or any meeting of the stockholders of the Memphis & Charleston Railroad Company, the baneful control of the East Tennessee, Virginia & Georgia Company over its affairs will be continued for another year, and its legitimate earnings will be diverted from its stockholders, and, under various devices, absorbed by the East Tennessee, Virginia & Georgia Company." The prayer for injunction is twofold: First, that the East Tennessee, Virginia & Georgia Company be enjoined from voting the stock standing in its name, either in the election of directors of the Memphis & Charleston Company or in any other meeting of the...

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