Dana v. Morgan

• Decision Date: 14 March 1916
• Docket Number: 178.
• Citation: 232 F. 85
• Parties: DANA v. MORGAN et al.
• Court: U.S. Court of Appeals — Second Circuit

232 F. 85

DANA v. MORGAN et al.

No. 178.

United States Court of Appeals, Second Circuit.

March 14, 1916

This cause comes here on an appeal from a decree of the District Court of the United States for the Southern District of New York, filed on January 14, 1915. The defendant company is a corporation organized and existing under the laws of the state of Colorado. It was formed for the purpose of raising and selling live stock and for purchasing, leasing and working gold and silver and other mines in the republic of Mexico. The company has a capital stock of $1,500,000 and the incorporators were men of means, and among them were George Bliss, Theodore K. Gibbs and Edwin D. Morgan, at one time Governor of New York and grandfather of the defendant Morgan.

The plaintiff, as the executor of Charles Dana, is the owner of about 4,000 shares of the stock of the defendant company, and is a citizen and resident of New York. The defendant Morgan is a citizen of Rhode Island. It is alleged that he represents, in himself and on behalf of his father's estate or other relatives, about 19,000 shares of the stock of the defendant company. He became president of the company serving in that capacity without salary. In 1910 he resigned as president, and subsequent to his resignation and on December 7, 1910, entered into a contract with the company whereby it was agreed that he should act as the general agent of the company for a period of 10 years beginning with the year 1911. The contract provided the amount of compensation which Morgan was to receive for his services. But as the provision relating to that subject is complicated and lengthy it is not set forth in detail in this connection. The original contract of December 7, 1910, was modified on May 8 1911, in respect to the compensation which Morgan was to receive for his services. But it is not necessary to state the terms as changed. Under each contract he was to receive his compensation through commissions. And it is alleged that during the years 1911 and 1912 the defendant Morgan received under the contracts more than the sum of $32,000.

The contract of December, 1910, and the subsequent contract of May, 1911, were each submitted by the directors to a stockholders' meeting, at which they were ratified and confirmed. The first contract was ratified by a vote of 81,489 shares in the affirmative as against 19,810 shares in the negative; the Morgan stock not being voted. At a subsequent meeting of the stockholders the contract of 1911 received along with other matters submitted for approval, a ratifying vote of 99,033 for as against 38,714 in the negative.

Parson Clossom & McIlvaine, of New York City (Herbert Parsons, of New York City, of counsel), for appellant.

William W. Cook, of New York City, for appellee Morgan.

Boothby, Baldwin & Hardy, of New York City (Charles F. Brown, of New York City, of counsel), for appellee Corralitos Co.

Before COXE, WARD, and ROGERS, Circuit Judges.

ROGERS Circuit Judge (after stating the facts as above).

This is a stockholder's suit. The plaintiff sues on behalf of himself and all other stockholders who did not consent to the making of the contracts complained of and who are willing to contribute to the expense of the action. The complaint states that the commissions which the defendant company agreed to pay defendant Morgan under the contracts were excessive and beyond what the earnings of the company warranted and that they were more than the fair and reasonable value of his services. The bill alleges:

'The excessive compensation thereby sought to be secured to the defendant Morgan has been and will have to be paid out of moneys which of right and in the exercise of sound discretion should be distributed to the stockholders of the said corporation as dividends or used for the development of its property or in the satisfaction of the mortgage or the retirement of its preferred stock; and such sums as have been paid have been so paid and such sums as the said pretended contracts contemplate shall be paid are to be so paid in fraud of the rights of the defendant company and of its stockholders. Each of the said pretended contracts was made in bad faith, was in fraud of and was oppressive and unfair to the defendant company and the stockholders thereof and contemplates a dissipation of the profits and assets of the said corporation and the waste of its capital.'

The bill also alleges that the plaintiff did not consent to the making of either of the contracts and that he has not consented to the making of any payment to the defendant Morgan under the contracts. The bill also alleges that it is impossible to get the corporation to bring the action and that it is therefore made a party defendant. A decree is sought directing repayment to the defendant company by the defendant Morgan of the excess of compensation which the defendant company has paid to him under the contracts.

This suit was commenced in November, 1913, and it appears that in November, 1912, a stockholder in the same company, James Harold Warner, commenced a suit against these same defendants in the Supreme Court of the state of New York on these same contracts. The suit was brought by Warner in the words of the complaint 'on behalf of himself and all the stockholders of the Corralitos Company who did not consent to the making of either of the two contracts. ' The bill in that suit alleged:

'That the amount of the salary fixed by each of the said contracts is grossly disproportionate to the reasonable value of the services which defendant Edwin D. Morgan bound himself in the said contract to render; that the reasonable value of the said services is not more than $2,500 per year. On information and belief that the sum of $32,000 has been paid to defendant Edwin D. Morgan under the said contracts. That the plaintiff did not consent to the payment thereof or any part thereof.

'Wherefore the plaintiff demands judgment against the defendants that the said contracts be set aside and that defendant Edwin D. Morgan account for the sums of money which he has received under the said contracts and that defendant the Corralitos Company be enjoined, pending the determination of this action, from paying any more money to defendant Edwin D. Morgan under either of the said contracts and for such further and other relief as may be just, together with the costs and disbursements of this action.'

The demand for judgment in the case at bar reads as follows:

'Wherefore, the plaintiff demands judgment against the defendant that the said pretended contracts be set aside and cancelled, that the defendant Morgan account for the sums of money which he has received under the said pretended contracts, that he pay back to the defendant company the difference between the sums of money so received and the fair and reasonable value of his services rendered to the defendant company during the period for which he received the said sums, and that the defendant company be enjoined pending the determination of this action, from paying any more money to the defendant Morgan under either of the said pretended contracts; and for such further and other relief as may be just, together with the costs and disbursements of this action.'

In the suit in the New York court judgment was entered for the defendant and the bill was dismissed. Warner v. Morgan, 81 Misc.Rep. 685, 143 N.Y.Supp. 516. That court in its findings of fact found that the contracts were within the company's chartered powers, that there was no proof that they were fraudulent or oppressive, that the contracts were exceptionally favorable to the defendant company, and that the contract as modified by the contract of May 8, 1911, was in all respects valid. And this judgment has been affirmed by the Appellate Division. 165 A.D. 903, 149 N.Y.Supp. 1117.

It appears that the plaintiff in the case at bar was well aware, at the time, of the pendency of the suit in the New York court; that he knew of it from the time of its commencement and could at any time have intervened therein and become a party thereto. He did not, however, see fit to do so. And it is claimed now that he is concluded by that judgment and that the question involved in this case is res adjudicata. The court below dismissed the bill on that ground.

It is evident that the plaintiff in this court seeks exactly the same result that the plaintiff in the New York suit sought. They both attempted to have the contracts under which the defendant was employed set aside. And the...