Carson v. Allegany Window Glass Co.

• Decision Date: 15 May 1911
• Docket Number: 291.
• Citation: 189 F. 791
• Parties: CARSON v. ALLEGANY WINDOW GLASS CO. et al.
• Court: U.S. District Court — District of Delaware

189 F. 791

CARSON v. ALLEGANY WINDOW GLASS CO. et al.

No. 291.

United States Circuit Court, D. Delaware.

May 15, 1911

Saulsbury Ponder & Morris and Rufus B. Stone, for complainant.

Marvel & Marvel and E. R. Mayo, for defendants.

BRADFORD District Judge.

The Allegany Window Glass Company, one of the defendants hereinafter referred to as the glass company, is a corporation of Delaware engaged in the manufacture of window glass, and having its principal place of business at Port Allegany, McKean County, Pennsylvania. Robert W. Hilton, the other defendant, who is a director and the president of the glass company, is a citizen of Pennsylvania. Catherine E Carson, the complainant, is a citizen of New York, and a stockholder of the glass company. The allegations of the bill are to the general effect that the defendant Hilton is, and during the period when the various acts complained of occurred was, the president and a director of the glass company and the owner and holder of over sixty per cent of its capital stock, the complainant being one of the minority stockholders; that during that period Hilton was president of the Ormsby Gas Company, hereinafter referred to as the Ormsby company, engaged in producing and supplying natural gas, and by virtue of ownership of capital stock controlled that company, his interest in the Ormsby company being greater than his interest in the glass company; that natural gas was used by the glass company for the manufacture of glass from the time it commenced operations in 1901; that the glass company had obtained its initial supply of natural gas at certain rates specified in the bill, and such supply prior to 1904 had become inadequate for the full operation of its plant; that in 1904 the Manufacturers Gas and Fuel Company, hereinafter referred to as the manufacturers company, offered to enter into a contract with the glass company to supply to it all the natural gas it would require for a period of three years, delivered at the plant of the glass company, at certain rates specified in the bill; that such offer was fair and favorable to the glass company and was submitted to its board of directors, but Hilton, having in view his larger interest in the Ormsby company and possessing by virtue of his ownership of a majority of the capital stock of the glass company a controlling influence with its board of directors, opposed the acceptance of the offer which by reason of such opposition and influence was rejected; that the supply of natural gas available to the glass company was immediately prior to the rejection of the above offer restricted to the manufacturers company, the Ormsby company and the Citizens Gas Company, hereinafter referred to as the citizens company, then inadequately supplying the glass company under a contract shortly thereafter to expire; that Hilton induced the rejection of the offer of the manufacturers company knowing that such rejection was against the interests of the glass company, and in order to promote his personal advantage by compelling the latter company to resort to the Ormsby company for its supply of natural gas upon such terms as the last named company should dictate; that following the rejection by the glass company of the offer of the manufacturers company, Hilton, in violation of his fiduciary relations to the glass company and without action on its part or consultation with its board of directors, negotiated for it the purchase from the Ormsby company of certain gas and oil leaseholds represented by him to be productive of natural gas, at an exorbitant price fixed by himself with the Ormsby company, and subject to a certain agreement on the part of the glass company to drill wells, the consideration coming to the Ormsby company being a comparatively small cash payment by the glass company and the payment by it the Ormsby company for each 1,000 feet of natural gas at a certain rate specified in the bill, the cost of production and transportation of such gas to be borne by the glass company; that the effect of the above contract of purchase was for an indefinite period to transfer to the Ormsby company largely for the use of Hilton the entire surplus and profits which the glass company and its stockholders would have derived and enjoyed from the operation of its plant; that before any formal action was taken by the directors or stockholders of the glass company touching such contract of purchase, Hilton unlawfully and fraudulently took of its funds $2,100 'to pay to himself' on account of the consideration coming to the Ormsby company under such contract of purchase, and the further sum of $900 'to replace in the treasury of the company money taken from it by him without right or authority' to purchase in his own name 'stock in a corporation manufacturing a certain patent glass machine'; that the complainant in March, 1906, protested to Hilton against the above mentioned contract of purchase and the misappropriation by him of the funds of the glass company, but such contract of purchase was on or about September 24, 1906, against the protest of the complainant through her attorney in fact ratified by the stockholders of the glass company, Hilton through his ownership of a majority of the capital stock and his misrepresentations securing that result; that such contract of purchase has proved of 'great and incalculable detriment and injury' to the glass company; that no dividends have since been received by its stockholders but its funds available for that purpose have been arbitrarily expended by direction of Hilton in drilling wells for the purpose of meeting personal obligations on his part arising out of the affairs of the Ormsby company and in 'matters of his own personal expense as, for instance, in the cost of keeping his own driving horses'; that Hilton without authority on or about January 1, 1904, withdrew from the treasury of the glass company $2,500 which under remonstrance from the complainant was subsequently in whole or in part refunded by him; that he procured the sale of capital stock of the glass company to one of his relatives then serving as its secretary and treasurer for the consideration of a promissory note for $2,500 given by the latter, such note not constituting lawful consideration for the purchase of such stock; that the glass company 'under the direction and influence' of Hilton within two years before the commencement of this suit entered into the National Brokerage Association, 'formed for the unlawful purpose of increasing the selling price of window glass by means of keeping the factories of the constituent companies closed after the expiration of the usual closed season, and thereby curtailing the manufacture of window glass,' by reason whereof the output or product of the glass company of the value of more than $40,000 'has been retained for long periods of time in its storerooms at the cost of insurance, interest and taxes thereon,' whereby the glass company 'has suffered in great measure the loss of its market, its good will and its credit, and the interests of its minority stockholders have been sacrificed, prejudiced and disregarded'; that the factory and site of the glass company are covered by a mortgage on which the sum of about $15,000 is due and unpaid, and foreclosure is now threatened; that a judicial sale of its factory and site would leave the glass company in possession of its franchises but 'stripped of its property, and powerless to resume operations'; that 'in the manner aforesaid, and by divers means in like manner,' Hilton and the other directors of the glass company controlled by him have in wrongful and fraudulent disregard of their fiduciary duty to the minority stockholders so mismanaged the affairs of the company that its capital stock has lost one half of its value and is rapidly depreciating and the company is 'involved in debt and on the verge of insolvency'; and that the continuance in the management of the glass company of Hilton and the directors associated with him 'is a menace to the best interests of said minority stockholders, and threatens to still further impair and eventually destroy the value of their stock and of the property, good will and credit of the said defendant company.' In addition to subpoena and answer, the bill prays for (1) the appointment of a receiver 'to take charge of all the property and assets' of the glass company and 'to manage the said company for the best interests of all its stockholders'; (2) an order that 'the merchantable manufactured product' of the glass company on hand 'be sold at the best price obtainable therefor, and the proceeds thereof applied in payment of the dividends declared and unpaid'; (3) an order that the glass company withdraw from the National Brokerage Association, 'if now connected with it'; (4) a decree canceling the contract of purchase between the glass company and the Ormsby company and directing the defendant Hilton to account to the glass company 'and it to the plaintiff herein for all moneys due, and for all losses and damages, which it and the said plaintiff, respectively, have sustained in the premises'; (5) an injunction, 'preliminary until hearing, and perpetual thereafter,' restraining the glass company 'from making sale, pledge or lease or otherwise in any manner disposing of or encumbering the property, or any part thereof, of said company, excepting only current sales of glass'; and (6) other and further relief.

The prayer for a receiver will first be considered. By the act of March 25, 1891, c. 181, vol. 19, Del. Laws, it is provided that whenever a corporation other than for public improvement 'shall be insolvent, the Chancellor, on the application and for the benefit of any creditor or stockholder thereof may, at...