Ames v. American Telephone & Telegraph Co.
| Decision Date | 14 January 1909 |
| Docket Number | 435. |
| Parties | AMES v. AMERICAN TELEPHONE & TELEGRAPH CO. |
| Court | U.S. District Court — District of Massachusetts |
Whipple Sears & Ogden and William F. Poole, for plaintiff.
Storey Thorndike, Palmer & Thayer, for defendant.
The declaration is framed in reliance upon the Sherman anti-trust act (Act July 2, 1890, c. 647, Sec. 1, 26 Stat. 209 (U.S Comp. St. 1901, p. 3200)), and claims threefold damages under that act.
The declaration avers in effect that the plaintiff is the owner of shares of the capital stock of the Telephone, Telegraph & Cable Company of America, organized to operate an independent telephone system throughout the United States; that the defendant, the American Telephone & Telegraph Company, secured control of the Telephone, Telegraph & Cable Company by the purchase of shares of its stock. The principal allegation requiring consideration is the following:
'The plaintiff avers that the defendant purchased said shares and secured said control for the purpose of preventing the free operation of competition in the interstate telephone traffic and commerce which said company had planned to carry on, and in the attempt to monopolize such commerce; that said cable company has since been managed by the nominees of the defendant and its agent, the said Morse, not for the purpose of developing the business for which said company was organized, but for the purpose of preventing said company from doing business, and thus suppressing and smothering the competition which it would otherwise cause to the business of the defendant, until now the company is in the hands of a receiver; and that by the exercise of its control of said cable company the defendant has, in fact, since monopolized such interstate telephone commerce.'
It is alleged that the plaintiff's injury was rendering worthless his shares of stock of the cable company. The principal question upon demurrer is whether the declaration sets forth any injury to the plaintiff resulting in a special damage peculiar to himself and distinguishable in kind from that which he shares with all other shareholders as a result of an injury to the corporation in its business or property.
Assuming merely for purposes of decision upon demurrer that the declaration alleges a violation of the Sherman act, and that it properly alleges consequent damage, I am of the opinion that the injury set forth is to the corporation, for which the corporation alone can maintain an action at law under the Sherman act. Section 7 of that act gives a right to recover threefold damages to--
'any person who shall be injured in his business or property by any other person or corporation by reason of anything forbidden or declared to be unlawful by this act,' etc.
The business which it is alleged was injured was that of the Telephone, Telegraph & Cable Company of America, and not of the plaintiff. Can it be said that the injury which the plaintiff has suffered by the depreciation of the value of his shares constitutes such an injury in his property that it is distinguishable from the injury to the corporation? The right of a stockholder to maintain an action at law for injury suffered by the corporation was carefully considered by Chief Justice Shaw, in Smith v. Hurd et al., 12 Metc. (Mass.) 371, 46 Am.Dec. 690. In this opinion it is recognized that to the extent of his separate and peculiar interest a stockholder may maintain his separate and special action. It is said, however:
A later case, Converse v. United Shoe Machinery Company, 185 Mass. 422, 70 N.E. 444, reaffirms the doctrine of Smith v. Hurd, and is in point upon the question whether this declaration sets forth any special injury to the plaintiff which is distinguishable from the alleged injury to the corporation. The language of the court is as applicable, I think, to the declaration in the present case as to the similar declaration then before the court:
The Sherman act does not by its terms affect the question whether an injury is in legal contemplation an injury to the corporation or an injury to the stockholder. This question must be determined upon ordinary principles of law. There can be little doubt that the ordinary principle of representation of the stockholders by the corporation is as applicable to a violation of the Sherman act as to any other violation of law. There is no indication of an intention of Congress to subject a defendant to independent suits by a multitude of stockholders for an act for which the statute affords redress to the corporation itself.
The corporation has a right of action, and to so interpret the act as to confer a right of action upon the stockholder also, upon the present declaration, would be in effect to subject the defendant not merely to treble damages, but to sextuple damages, for the same unlawful act. The plaintiff's brief does not make satisfactory answer to this point. It is suggested by the plaintiff:
'If the corporation should also at some later time sue and recover, the fact of the plaintiff's earlier recovery should be considered in estimating the damages to be paid to the corporation.'
The declaration alleges that the cable company is now in the hands of a receiver. It follows that upon recovery of damages for an injury to the corporation the fund belongs to the receiver for application to the obligations of the corporation. These obligations take precedence over the interest of the shareholder. The prior recovery by a shareholder, if permitted to diminish recovery by the receiver, would result in depriving creditors of the corporation, if...
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