Schmidt, &C. v. Mitchell, &C.

• Citation: 101 Ky. 570
• Parties: Schmidt, &c. v. Mitchell, &c.
• Decision Date: 24 June 1897
• Court: Kentucky Court of Appeals

101 Ky. 570

Schmidt, &c. v. Mitchell, &c.

Court of Appeals of Kentucky.

June 24, 1897.

APPEAL FROM JEFFERSON CIRCUIT COURT, LAW AND EQUITY DIVISION.

B. F. BUCKNER FOR APPELLANTS.

BYRON BACON, C. B. SEYMOUR AND ERNEST MACPHERSON ON SAME SIDE.

PINCKNEY F. GREEN AND HUMPHREY & DAVIE FOR APPELLEES.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

JUDGE Du RELLE DELIVERED THE OPINION OF THE COURT.

The Oregon Gold Mining Co. was incorporated by articles filed in the Jefferson County Court in October, 1885, its principal place of business being Louisville, Ky. It was the owner of a gold mine in Union county, Oregon. More than half a million dollars had been invested in the stock and bonds of the corporation prior to October, 1893, but without profitable results. One mortgage of $200,000, another of $40,000 and another of $30,000 had been executed by the company upon its mines and property, and it had incurred a floating debt in addition. For the greater part of the period mentioned, Mr. Geo. H. Dietz had been the president, Mr. A. L. Schmidt, treasurer, and Mr. H. W. Bohmer, secretary, of the company. The charter provided for the annual election of a board of nine directors, which should elect a president, a secretary and a treasurer.

At the election of 1892, Messrs. Dietz, Schmidt, Kelly, Houston, Mitchell, Wolters, Bohmer, Gerst, and Wolkup were elected directors, and Messrs. Dietz, Schmidt and Bohmer were elected president, treasurer and secretary, respectively. An election was held on October 17, 1893. There was dissatisfaction among some of the stockholders with the management of the company, and two tickets were nominated, one being composed of the former members of the board of directors and the other being the same ticket, with the exception that the names of Messrs. Zimmerman, Peter and Neuner were substituted for those of Messrs. Bohmer, Gerst and Wolkup. A certificate of election was given by Abner Harris as chairman and Frank A. Gerst as secretary of the stockholders' meeting that the gentlemen composing the new ticket were elected directors of the company. Messrs. Schmidt and Dietz claimed that the election was void, and that the old board of directors held over. Schmidt, Dietz, Houston and Kelly were requested on several occasions to meet with the other five, who composed the new ticket, and organize the new board, but failed to do so. The other five thereupon held a meeting, to which the four mentioned were invited, but which they did not attend, and elected Wolters, president, Peter, treasurer and Matthews, secretary. Schmidt, Dietz and Bohmer refused to recognize the members of the new ticket, and called no meeting of the old board.

On November 17, 1893, this suit was instituted in equity by Mitchell, Wolters, Zimmerman, Peter, Neuner and some other stockholders against the company, Schmidt, Dietz and Bohmer, setting up in substance the facts above stated and alleging that Dietz, Schmidt and Bohmer had mismanaged the business of the company, and had thereby entailed, and would entail, great and irreparable loss and injury; that they had charge of all the personal property, books, papers, etc., of the company, and control of its works; that the new board had been elected by a large majority of the stockholders, who desired a change in the management; that the officers selected by the new board had demanded possession of the books, papers and moneys of the company, and control of its affairs, but had been refused; that by reason of the claim of two boards of directors and two sets of executive officers to the possession of the property, the company could not carry on business, make contracts or operate its mines, and that the company would thereby be entirely wrecked and the value of its property wholly or in great part destroyed. It was further alleged that the old executive officers refused to give information concerning, or permit an inspection of, the books of account of the company; that only a small portion of the interest had been paid on any of the bonds; but that the interest had been repeatedly allowed to default, and that unless a receiver were appointed to take charge of the books, money and property of the company, and manage it, proceedings for the foreclosure of the mortgages would be instituted, the property sold at a sacrifice and the interests of the stockholders lost. Various specific instances of mismanagement were charged, and it was prayed that the defendants be enjoined from interfering with or preventing the new board from taking possession of the books, papers and assets of the company, and for the appointment of a receiver to take charge of the property until it could be placed in the hands of new officers.

Pending the hearing upon motion for the appointment of a receiver, an ad interim order was entered by the court of its own motion on December 11, 1893, that, during the pendency of the motion, neither party should cause any steps to be taken, or allow any application to be made in their names for the possession of the mines in Oregon, or for a receiver in Oregon or in any other court. On the same day the appellant, Schmidt, who was trustee for the bondholders in the mortgages before referred to, instituted a suit in the Oregon court, seeking the appointment of a receiver there to take charge of the property of the company. On the 13th day of December, 1893, the trial court appointed a receiver and directed him to take charge of the books, papers and assets of the company in Kentucky, and also to take possession of the property in Oregon. Proceedings for contempt for disobedience to the order of court were instituted against Schmidt and Dietz. Their right to appeal from the order of injunction was denied by the trial court, and they resorted to mandamus proceedings to secure the right. The decisions upon the various appeals in regard to these questions are reported in the cases of Kelly v. Toney, 95 Ky., 338; Schmidt v. Mitchell, 93 Ky., 342; and Kelly v. Mitchell, 98 Ky., 218.

An immense mass of testimony has been taken in the case, and every point which could be raised has been elaborately and ably argued by counsel. But, as said by Judge Lewis in the opinion in the case last referred to: "The subject-matter of controversy in this action is possession and control, according to articles of incorporation, of the property and business affairs of `The Oregon Gold Mining Co.,' and is exclusively between plaintiffs, suing therefor as directors and executive officers, certain stockholders uniting with them, and defendants, who, as incumbents, plead an adverse claim. And thus was formed the single issue in the action of title to the offices. Consequently, the only determinate judgment the lower court had jurisdiction to render in favor of plaintiffs, if any at all, is that those of them so indicated in the petition constitute the legal board of directors and of executive officers, and are entitled to the possession and control."

The first ground of reversal urged on behalf of appellants is that the election was not held by the cumulative system of voting; that the present Constitution (section 207) provides that, in all elections for directors of any corporation, the system of cumulative voting shall be adopted, and that directors or managers of corporations shall not be elected in any other manner; and that, in pursuance of that section the general assembly adopted an act providing for taking such votes upon the cumulative system. It is unnecessary for us to consider or pass upon the question which is raised by appellees, whether this section of the Constitution and the act passed in pursuance thereto were not prospective in their nature, and applicable only to corporations thereafter created, or which should thereafter adopt provisions of the new Constitution. It is only necessary to say that, under the cumulative system of voting, stockholders are entitled to vote in the mode which prevailed before the adoption of that system, if they so desire. That is to say a man holding ten shares of stock in this corporation could either cast ten votes each for nine candidates for election to the board of directors, or he could cast ninety votes for one candidate. It does not appear that any stockholder claimed the right to cast his vote upon the cumulative system, and no stockholder was required to vote his stock cumulatively, unless he so desired. It appears that the appellants themselves were present at the election, and did not claim the right to vote their stock cumulatively or object to the right of any other stockholder to vote according to the old method. We, therefore, conclude that the manner of holding the election was legal, inasmuch as no stockholder was denied the right to vote his stock cumulatively.

The next question presented for decision is as to the casting of the vote of the stock belonging to the estate of Jacob Peter, deceased. It appears from the evidence that Jacob Peter left a will, in which he appointed three executors — the appellee, George L. Peter, Henry Peter and George W. Lewman. By the will $124,000 of stock in this company was devised to six children, one of whom was appellee, George L. Peter. At the time of the election in October, 1893, the stock had not been distributed by the executors. Neither Lewman nor Henry Peter were present at the election. On March 4, 1893, Lewman had given to Dietz a proxy to vote the stock held by him as executor at meetings of the company; but it appears that, a few days before the election, Lewman and Henry Peter united in a proxy to George L. Peter to vote the stock held by the estate at the election in question. Dietz presented his proxy, but Mr. Peter being present, and claiming the right as executor to vote the stock Dietz withdrew his claim (it is now claimed temporarily, and with the right reserved to revive it at a future time), and made no objection to Peter casting the vote of the stock...