Denman v. Richardson

• Decision Date: 12 July 1921
• Docket Number: 2791.
• Citation: 284 F. 592
• Parties: DENMAN et al. v. RICHARDSON.
• Court: U.S. District Court — Western District of Washington

284 F. 592

DENMAN et al. v. RICHARDSON.

No. 2791.

United States District Court, W.D. Washington, Southern Division.

July 12, 1921

George P. Fishburne, of Tacoma, Wash., for plaintiffs.

Kerr &amp McCord, of Seattle, Wash., for defendant.

NETERER District Judge.

The defendant has filed a demurrer, on all statutory grounds, to the fifth amended complaint. The complaint, so far as material here, in the first count alleges the incorporation of the Pacific Cold Storage Company; ceasing of business of said corporation on May 1, 1918; the adoption of a resolution at a regular meeting of the stockholders May 31, 1918, by unanimous vote of the stockholders to dissolve the corporation; instructions of its officers and trustees to sell all of its property collect all money, and distribute the proceeds and all funds of the corporation to its stockholders; that no new business was done after May 1, 1918, and that the formal order of dissolution was entered on the 2d day of June, 1919, in a state court having jurisdiction, and the relation of stockholder is set out; and that during the active business life of the corporation profits were realized, and some were paid to the stockholders upon declared dividends; that other profits were accumulated, and were available for distribution at the time of dissolution, and were so distributed, except 'a portion unlawfully appropriated by defendant, * * * ' and then alleges an appropriation by the defendant of $18,000.00; that of such sum the plaintiff Denman, and those by him represented, are entitled to $4,981.60; said appropriation being made by the defendant while acting 'as trustee and president' of such corporation.

Count 2 alleges the same fact with relation to incorporation and dissolution and relation of stockholder, and states that the defendant while acting as such trustee for the shareholders of said company, after said company had ceased to do business and its dissolution, unlawfully appropriated to his own use from the 'capital return' of said corporation various sums of money, of which sums the plaintiff Denman, and his principals are the owners of $4,851.00, together with interest. It is contended by the defendant that there is a defect of parties plaintiff and defendant, and a misjoinder of causes of action, and that the complaint does not state a cause of action; that if a misappropriation was made the corporation is the proper party plaintiff, and that the indebtedness, if any, is due to the corporation and not to the stockholders; that the corporation should be defendant if it is not plaintiff, and that the other trustees should be parties defendant; that the plaintiff has not capacity to sue.

I think that it is settled that the right to maintain a suit against officers of a corporation for misappropriating its property is in the corporation. The stockholder may only bring an action for the ownership of the stock vested in him at the time of the wrongs complained of, and if he made earnest effort to obtain redress at the hands of the trustees (Hawes v. Oakland, 104 U.S. 450, 26 L.Ed. 827), or state that the corporation is in the hands of alleged wrongdoers (United Copper Co. v. Heinze, 244 U.S 265, 37 Sup.Ct. 509, 61 L.Ed. 1119), and where the corporation is a going concern it is a necessary party (Davenport v. Dows, 18 Wall. 626, 21 L.Ed. 938).

When, however, a corporation ceases to be a going concern and a receiver is appointed, all rights of the corporation vest in the receiver. Porter v. Sabin, 149 U.S. 475, 13 Sup.Ct. 1008, 37 L.Ed. 815. By the same token upon the dissolution of a corporation, the trustees at the time of the dissolution shall be trustees of the creditors and stockholders (section 3707, Rem. & Bal. Code), 'and shall have full power and authority to sue for and recover the debts and property of the corporation. ' Upon dissolution of the corporation, the corporate entity ceased. The corporation has no power to sue. All rights of the corporation are ended, and the property and funds of the corporation are vested in the trustees for the stockholders. All debts are paid, it is alleged. The trustees are trustees not of the corporation, but by operation of statute, of the individual stockholders, to the extent of the interest of the stockholder in the fund or property. If the trustee is guilty of wrongdoing, the remedy of the stockholder cannot be through the corporation because it has no entity.

It is alleged that the defendant misappropriated the funds while acting as trustee for the stockholders. There is, therefore, no occasion for any action on the part of the trustee. It is charged that the defendant trustee has the funds, and declines to account for them, nor is it necessary to bring an action to declare a trust, as in Southern Pacific Co. v. Bogert, 250 U.S. 483, 39 Sup.Ct. 533, 63 L.Ed. 1099, or in Barker v. Edwards, 259 F. 484, 170 C.C.A. 460, because the trust is established by statute. The action is not in tort, but for money had and received, and can be maintained only against the party who has the funds. Simmons v. Spencer (C.C.) 9 Fed. 581.

An action must be commenced in the name of the real party in interest. Section 179, R. & B. Wash. Code. Miller, a stockholder, had a right to institute an action for transgression of his rights, and thereafter had a right to transfer his interest by reason of being a stockholder, and the beneficial interest accruing thereby, and the purchaser be substituted and prosecute the action to final judgment. Box v. Kelso, 5 Wash. 360, 31 P. 973; Baker v Northwest Bldg. & Inv. Co., 33 Wash. 677, 74 P. 825; Trumbull v. Jefferson County, 60 Wash. 479, 111 P. 569, 140 Am.St.Rep. 943; Bell...