American Creosote Works, Inc. v. Powell

• Decision Date: 03 April 1924
• Docket Number: 4079.
• Citation: 298 F. 417
• Parties: AMERICAN CREOSOTE WORKS, Inc., et al. v. POWELL.
• Court: U.S. Court of Appeals — Fifth Circuit

298 F. 417

AMERICAN CREOSOTE WORKS, Inc., et al. v. POWELL.

No. 4079.

United States Court of Appeals, Fifth Circuit.

April 3, 1924

Rehearing Denied May 7, 1924.

Wm. B Grant and Charlton R. Beattie, both of New Orleans, La., for appellants.

Geo Denegre, Victor Leovy, Henry H. Chaffe, Henry P. Dart, Henry P. Dart, Jr., H. Generes Dufour, Abraham Goldberg, J. Blanc Monroe, Monte M. Lemann, and Eugene J. McGivney, all of New Orleans, La. (Dart, Kernan & Dart, Dufour, Goldberg & Kammer Eugene J. McGivney, and Monroe & Lemann, all of New Orleans, La., on the brief), for appellee.

Before BRYAN, Circuit Judge, and SIBLEY and HUTCHESON, District judges.

HUTCHESON District Judge.

This is an appeal from a decree in a stockholders' suit, brought by Edwin L. Powell against the American Creosote Works, Inc., and S.W. Labrot. The decree directed the annulment of the proceedings of the stockholders and directors of the defendant corporation taken in September, 1921, providing for the issuance of additional stock out of the stock in the treasury authorized by charter, the annulment and cancellation of the actual shares of stock issued pursuant to said proceedings, and provided also for the annulment of the transfer by defendant Labrot to defendant corporation of certain real estate in Washington, D.C. The decree further provided that:

'All stock issued by the defendant company under the proceedings hereinabove referred to be and it hereby is annulled, and it is hereby ordered and decreed that the defendant company receive the certificates for such stock from the parties to whom they were issued, and return to such parties the amounts paid by them therefor, with legal interest thereon from the date of payment.'

In the oral argument before this court counsel for appellants stated that they desired to present only the points arising on their motion to dismiss the bill or bills of plaintiff, and that, if this court was of the opinion that the bill should have been retained by the District Court for hearing, they were willing to abide the judgment which that court had rendered on the merits. In short, all of the assignments directed to the action of the court on the actual trial of the case, and to the remedial portions of the decree, were waived, and there was submitted to this court for determination only the question whether the bill should not have been dismissed for some of the reasons asserted against it in the court below.

In their brief on the motion to dismiss the bills of complaint appellants state the issue on page 3 thereof thus:

'Defendant American Creosote Works, then the only party before the court, filed a motion to dismiss on the several grounds that the court had no jurisdiction in the premises, and because the bill did not state any matter of equity entitling complainant to the relief prayed for, or that complainant has been injured or would be injured.'

On page 6 they say:

'Exceptions to the jurisdiction and for lack of equity were also taken to this bill (that is, the second) by both defendants.'

The jurisdictional point pressed by the defendant was that this was a stockholders' bill involving the internal affairs of the corporation, which was of Maryland creation, and that such matters were only properly litigable in the courts of the corporation's domicile. We think both reason and authority are against this position. In those cases where courts not of the domicile have declined to take cognizance of internal controversies, the action has been based upon considerations of convenience rather than of jurisdiction. It has never been held that the court having jurisdiction by proper process of a corporation and its officers is without jurisdiction to extend the full relief asked for in the bill, merely because of the fact that the controversy involves internal management and the corporation is domiciled in a state other than that of the forum. Babcock v. Farwell, 245 Ill. 14, 91 N.E. 683, 137 Am.St.Rep. 284, 19 Ann.Cas. 74; Richardson v. Clinton, 181 Mass. 580, 64 N.E. 400; Corry v. Barre Granite & Quarry Co., 91 Vt. 413, 101 A. 38; American Seating Co. v. Bullard (C.C.A.) 290 F. 901; Travis v. Knox Terpezone Co., 215 N.Y. 259, 109 N.E. 250, L.R.A. 1916A, 542, Ann. Cas. 1917A, 387. In this last-named case the Court of Appeals of New York stated the matter thus:

'To trace in advance the precise line of demarkation between the controversies affecting a foreign corporation in which jurisdiction will be assumed and those in which jurisdiction will be declined would be a difficult and hazardous venture. A litigant is not, however, to be excluded because he is a stockholder, unless considerations of convenience or of efficiency or of justice point to the courts of the domicile of the corporation as the appropriate tribunals.'

And in Wineburgh v. United States, etc., 173 Mass. 60, 53 N.E. 145, 73 Am.St.Rep. 261 that court said:

'Perhaps the ground most relied on is that the defendant corporation is a foreign corporation, and therefore that this court will not take jurisdiction. There is no question that it can take jurisdiction if it sees fit, as the corporation has been served with process, and has appeared. We do not find in the cases, and we have not heard in argument, any suggestion of authority or reason for not using our power.'

It is our view that, jurisdiction of a court of equity having attached by proper service of process, no reason exists or suggests itself why, if the bill brings in the proper parties to make the decree effective, the mere fact that the corporation defendant, in whose interests and behalf the suit is brought, is domiciled in another jurisdiction, should prevent the court from giving the relief which the facts require, and we therefore overrule the assignments and propositions upon the lack of jurisdiction of the court because of the foreign domicile of the defendant corporation.

The second point upon lack of jurisdiction, and the point most vigorously urged in the brief on motion to dismiss, is that the bills were in reality stockholders' bills, and failed to comply with equity rule 27, in that the bill did not contain the allegation 'that the suit is not a collusive one, to confer on the United States District Court for the Eastern District of Louisiana jurisdiction of matters of which it would not otherwise have cognizance. ' Rule 27 is not in fact jurisdictional, but rather goes to whether the bill itself shows an equity. Illinois Central R.R. Co. v. Adams, 180 U.S. 28, 21 Sup.Ct. 251, 45 L.Ed. 410. And in addition that rule is intended to have practical operation, and to have that it must as to its requirements be given such play as to fit the condition of different cases. Delaware & Hudson Co. v. Albany R. Co., 213 U.S. 435, 29 Sup.Ct. 540, 53 L.Ed. 862.

Again, that part of the rule which requires certain preliminary steps to be taken by stockholders before bringing suit will be dispensed with when the interests of the directors are antagonistic to those of the corporation, or where this fact is shown by the pleadings. Ogden v. Gilt Edge Consolidated Mines Co., 225 F. 723, 140 C.C.A. 597; Krouse v. Brevard, 249 F. 538, 161 C.C.A. 464; Heinz v. National Bank of Commerce, 237 F. 942, 150 C.C.A. 592; United Copper Co. v. Amalgamated Copper Co., 244 U.S. 261, 37 Sup.Ct. 509, 61 L.Ed. 1119.

The bill on which the case went to issue and was tried, though erroneously styled 'supplemental bill,' is in effect and fact an amended bill, and was so treated by the parties and this bill, after alleging the transactions complained of as having been brought about through the activities of Sylvester W. Labrot, president of the company, with whom were associated his wife, his son, a bookkeeper for the company, and the personal stenographer and secretary of Labrot, and...