Dannmeyer v. Coleman

• Decision Date: 03 April 1882
• Court: United States Circuit Court, District of California
• Parties: DANNMEYER v. COLEMAN and others.

11 F. 97

DANNMEYER v. COLEMAN and others.

United States Circuit Court, D. California.

April 3, 1882

H. G Sieberst, for complainant.

Hall McAllister and Geo. R. Wells, for certain defendants.

S Heydenfeldt, for Consolidated Virginia Mining Company.

SAWYER C. J.

The complainant, a citizen of Germany, and the owner of 100 of the 540,000 shares of the capital stock of the Consolidated Virginia Mining Company, a mining corporation organized under the laws of the state of California, filed his bill in equity, on his own behalf, and on behalf of all other stockholders of the Consolidated Virginia Mining Company against James V. Coleman and James C. Flood, executors of W S. O'Brien, deceased; the Nevada Bank, John W. Mackay, James G. Fair, James C. Flood, the Pacific Mill & Mining Company, the Pacific Wood, Lumber & Flume Company, the Pacific Refinery & Bullion Exchange, and the Consolidated Virginia Mining Company. The object of the bill is to obtain an accounting between the defendant, the Consolidated Virginia Mining Company, and the several other corporations, defendants, the defendants Coleman and Flood, as executors of O'Brien, and Mackay, Fair, and Flood, in their individual characters as partners in the transactions set out, for large sums of money and a large amount of property, alleged to be ten millions of dollars in the aggregate, charged to have been fraudulently obtained upon various large transactions from the Consolidated Virginia Mining Company, by the other corporations, defendants, which are alleged to have been organized and controlled in pursuance of a conspiracy for that purpose, by the personal defendants, who also, as is alleged, owned a controlling interest in the Consolidated Virginia Mining Company, and were either the officers, or elected and controlled the officers, of that corporation. The sums so fraudulently and unlawfully obtained by said several corporations from the Consolidated Virginia Mining Company are charged to have been distributed in dividends to said Flood, O'Brien, Mackay, and Fair, or otherwise to have come into their hands.

The prayer of the bill is as follows: 'Wherefore, your orator prays that it be of your honor adjudged and decreed that the defendants, said Flood, Mackay, and Fair, and Flood and Coleman, as executors as aforesaid of the estate of said O'Brien, account to the said Consolidated Virginia Mining Company and to the stockholders thereof for all the wrongs, frauds, and breaches of trust hereinbefore alleged and complained of; and on such accounting repay and restore to the said Consolidated Virginia Mining Company, for the use of the stockholders therein, except the defendants in this action, all profits, moneys, and property belonging in law and equity to said company, realized, gained, or obtained by said defendants, or any of them, by means of the dealings and transactions hereinbefore set forth, together with all the proceeds and fruits thereof,' and for such other and further relief as may be just.

The allegations of the bill as to the acts of defendants, are similar to those contained in the bill in Burke v. Flood, 6 Sawy. 221, and it would serve no useful purpose to state them more fully now.

Mackay has not been served and has not appeared.

The Consolidated Virginia Mining Company demurs separately to the bill on various grounds, and several of the other defendants also demur upon similar grounds.

In the recent cases of Hawes v. Contra Costa Water Co. and Huntington v. Palmer, which went up from this court and were affirmed, the United States supreme court states the conditions which are necessary to enable a stockholder of a corporation to bring a suit on his own behalf and on behalf of the other stockholders to vindicate the rights of the corporation. After stating the character of the grievances necessary to entitle the stockholder, instead of the corporation, to sue, the court says: 'But, in addition to the existence of grievances which call for this kind of relief, it is equally important that before the shareholder is permitted in his own name to institute and conduct a litigation which usually belongs to the corporation, he should show to the satisfaction of the court that he has exhausted all the means within his reach to obtain, within the corporation itself, the redress of his grievances, or action in conformity to his wishes. He must make an earnest, not a simulated, effort with the managing body of the corporation to induce remedial action on its part, and this must be made apparent to the court. If time permits, or has permitted, he must show, if he fails with the directors, that he has made an honest effort to obtain action by the stockholders as a body in the matter of which he complains.'

There is no allegation whatever in this bill that the complainant has made any effort to induce the corporation, the Consolidated Virginia Mining Company, to seek a redress for the grievances alleged. It does not appear that he ever requested the directors to sue, much less that he ever made 'an earnest, not simulated, effort with the managing body of the corporation to induce remedial action on its part;' nor does it appear that 'he has made an honest effort,' or any effort of any kind, 'to obtain action by the stockholders as a body,' or even any stockholders individually; and nearly four years is certainly time enough to permit him to make such 'an honest effort.'

He alleges that one S. P. Dewey, a stockholder in said corporation, nearly four years before, at a regular session of the board of directors, made an application and demand that the corporation bring a suit against the said Flood, O'Brien, Mackay, and Fair for the recovery of the same moneys, on the same grounds as alleged in this bill, but that the said directors refused to bring the suit. But the action of Mr. Dewey cannot avail the complainant in this bill. He does not appear to be in privity with Dewey, or to have been in any way connected with the request. Reasons not applicable to the complainant in this bill may have existed that would justify a refusal to act upon Dewey's request. At all events, if the complainant desires action he must himself take steps to secure it before he can acquire a status that will enable him to take the vindication of the rights of the corporation and other stockholders into his hands. There is nothing in the opinion of the supreme court to indicate that the action of a stranger to him, for that stranger's own purposes, will give complainant the requisite status. It does not appear who were the directors or stockholders of the Consolidated Virginia Mining Company at the time of the filing of this bill, or for three and a half years prior to that date. Had the complainant applied to the board of directors then conducting the affairs of the corporations, it may be that his request would have been effectual. At all events, we are not authorized to assume the contrary without averment, and it should at least appear that some recent honest effort has been made to secure the protection of the rights of the stockholders through the action of the corporation itself. But even Dewey does not appear to have made any honest or any effort at all to obtain action by the stockholders as a body. So his action was in this respect also insufficient, within the decision, to enable him to maintain such a suit, must less the complainant.

The supreme court further says:

'The efforts to induce such action as complainant desires on the part of the directors and of the shareholders, when that is necessary, and the cause of failure in these efforts, should be stated with particularity; and an allegation that complainant was shareholder at the time of the transactions of which he complains, or that his shares have devolved on him since by operation of law, and that the suit is not a collusive one to confer on a court of the United States jurisdiction in a case of which it would otherwise have no cognizance, should be in the bill, which should be verified by affidavit.'

There is no allegation showing any of these facts. There is no allegation 'that complainant was...