American Seating Co. v. Bullard

• Decision Date: 29 June 1923
• Docket Number: 3763.
• Citation: 290 F. 896
• Parties: AMERICAN SEATING CO. v. BULLARD.
• Court: U.S. Court of Appeals — Sixth Circuit

290 F. 896

AMERICAN SEATING CO. v. BULLARD.

No. 3763.

United States Court of Appeals, Sixth Circuit.

June 29, 1923

Edgar H. Johnson, of Grand Rapids, Mich. (Travis, Merrick, Warner &amp Johnson, of Grand Rapids, Mich., on the brief), for appellant.

Eugene Carpenter, of Grand Rapids, Mich., for appellees.

Before DONAHUE, Circuit Judge, and SATER and WESTENHAVER, District judges.

WESTENHAVER District Judge.

The meritorious questions involved on this appeal pertain to the rights of nonconsenting minority stockholders of a corporation upon a transfer of all the corporate assets by authority of its directors and majority stockholders to another corporation in exchange for stock in the latter corporation. Such facts only will be stated as are required to show the questions of law to be determined.

The American School Furniture Company was incorporated under the laws of New Jersey in the year 1899. On April 23, 1906, it had outstanding mortgage bonds of $1,160,000, and was indebted in the sum of $725,000, and was in grave financial difficulty. It had outstanding preferred stock of the par value of $4,046,300 and common stock of the par value of $4,883,800. In order to deal with its financial difficulties and obtain credit, a plan of reorganization and refinancing was agreed upon by its board of directors and a committee representing the holders of its outstanding bonds. By the terms thereof the bondholders were to accept preferred stock in a new corporation formed to take over the assets of the old, in exchange for their bonds; the preferred stockholders were to get 25 per cent. of the par value of their stock, and the common stockholders 5 per cent. of the par value of their stock, in the common stock of the new corporation. This plan was to be effectuated by procuring an amendment to its charter authorizing its board of directors, with the consent by vote or in writing of two-thirds of each class of its stock, to sell, assign, and transfer all of its property and assets and to accept in whole or in part payment therefor capital stock of such corporation as might purchase its property. This amendment was regularly made pursuant to section 27, General Corporation Law of New Jersey, then in force (Laws 1896, p. 285), except as it may be asserted that the power thus obtained was unauthorized. The American Seating Company was chartered and organized under the corporation laws of New Jersey, for the purpose of receiving and accepting such transfer and continuing the business of the old corporation.

After such amendment, on April 23, 1906, at a meeting of the stockholders of the American School Furniture Company, held upon due notice in writing, more than two-thirds of each class of its capital stock consented by vote to the sale and transfer upon the terms above stated, and the sale and transfer was duly made. Preferred stock was issued to and accepted by the bondholders, and common stock, to the preferred and common stockholders, in the agreed proportions except a small minority, of whom the appellees are a part who were unwilling to receive or accept it. The new corporation also assumed the floating debt and thereafter continued the business. The appellees did not assent to the amendment to the charter of the American School Furniture Company, nor to the sale and transfer of its assets to the American Seating Company; nor did they in writing or otherwise make any protest until this action was brought.

In July, 1909, some of the appellees filed this bill in equity, and other appellees have since intervened. It was filed in the state court in Michigan, where one of the manufacturing plants thus transferred was situated, and was later removed to the United States District Court for the Western District of Michigan. The original bill, as well as the last amended bill on which the case was tried, contained a variety of allegations and sought various kinds of relief. The pleader seems to have adopted as a model Jones v. Missouri-Edison Electric Co., 144 F. 765, 75 C.C.A. 631. It is unnecessary to state the proceedings prior to the entry, February 24, 1915, of an interlocutory decree, since the relief granted by that decree presents the only questions now to be considered. This decree finds that the charges of fraudulent mismanagement and misappropriation made against the individual defendants were not sustained, but that the sale and transfer were beyond the power and authority of the American School Furniture Company under its charter and the corporation law of New Jersey; that the appellees had not voted in favor of the amendment to its charter, nor in favor of the transfer to the appellant; and that the appellees whose stock was not so voted were entitled to recover from the appellant, the American Seating Company, the value of said stock as of the date of such transfer, with interest thereon at 5 per cent., but denied appellees a lien on the assets within the jurisdiction of the court because of their laches. The cause was referred to a master to ascertain the value of such stock and the amount due to each of the respective appellees. On December 19, 1921, a final decree was entered, overruling all exceptions to the master's report, and rendering judgment in favor of appellees. An appeal has been taken only by the American Seating Company. None of the nonconsenting stockholders have appealed.

The appellees, however, complain of many alleged errors in the final and in the interlocutory decrees and in other prior proceedings. They suggest a diminution of the record, and ask an order to bring up additional parts of the record to show the errors thus complained of. This request is denied. No errors to the alleged prejudice of the appellees can or will be considered, because no appeal has been taken by any of them, and it is now too late so to do. An appeal from the District Court to the Circuit Court of Appeals must be taken within six months. Section 11, Act March 3, 1891; section 1647, U.S. Comp. St. An appeal can be taken only by procuring the entry of an order allowing an appeal and the issue and service of a citation. Old Nick Williams Co. v. United States, 215 U.S. 541, 30 Sup.Ct. 221, 54 L.Ed. 318; City of Waxahachie v. Coler (5 C.C.A.) 92 F. 284, 34 C.C.A. 349; Hudson v. Limestone Natural Gas Co. (3 C.C.A.) 144 F. 952, 75 C.C.A. 678.

The error chiefly complained of by appellant is the holding that the sale and transfer of assets, under the circumstances stated, was in excess of the power conferred by charter and the corporation law of New Jersey, and that the nonconsenting appellees had, in consequence, a right to recover the value of their stock. It is said that the amendment, as well as the sale, and transfer, were within the charter power and in conformity to the corporation law of New Jersey, and that in any event the laches and acquiescence of the appellees bar them from the relief given and oblige them to accept their proportionate share of the stock in the new corporation. The argument upon the law has been directed mainly to these contentions.

The law is settled without apparent conflict that neither the directors nor a majority of the stockholders of a solvent going corporation have power to sell all its property and assets, thereby disabling itself from achieving the objects of its creation, against the dissent of a single stockholder. 14 Cor.Jur. § 1323; 2 Cook on Corporations (6th Ed.) Sec. 670. It was so held in New Jersey in Kean v. Johnson, 9 N.J.Eq. 401, and in Michigan in Smith v. Smith, Sturgeon & Co., 125 Mich. 234, 84 N.W. 144, and such is also the purport of Mason v. Pewabic Mining Co., 133 U.S. 50, 10 Sup.Ct. 224, 33 L.Ed. 524. When insolvency has intervened a corporation is thereby disabled from achieving its corporate purposes and its assets become a trust fund for creditors, and a different situation is presented. Cas...