Dickinson v. Kline

• Decision Date: 23 June 1914
• Docket Number: 17,418
• Parties: CHARLES T. DICKINSON, RECEIVER, APPELLEE, v. JOHN J. KLINE ET AL., APPELLANTS
• Court: Nebraska Supreme Court

148 N.W. 141

96 Neb. 435

CHARLES T. DICKINSON, RECEIVER, APPELLEE, v. JOHN J. KLINE ET AL., APPELLANTS

No. 17,418

Supreme Court of Nebraska

June 23, 1914

APPEAL from the district court for Douglas county: ALEXANDER C TROUP, JUDGE. Reversed with directions.

REVERSED.

Sullivan & Rait, Charles G. Ryan, Charles P. Craft, Tibbets, Morey & Fuller, Mills, Mills & Beebe, L. S. Hastings, E. A. Coufal and James C. Kinsler, for appellants.

H. H Bowes and E. C. Page, contra.

OPINION

SEDGWICK, J.

In 1904 a corporation was organized under the laws of this state called the Omaha & Nebraska Central Railway, with an authorized corporate stock of $ 1,500.000. In 1908 John W. Ege, a stockholder of the company, began an action in the district court for Douglas county against the corporation, and, alleging gross misconduct on the part of the corporation and its officers, asked for the appointment of a receiver and an accounting. This plaintiff, Charles T. Dickinson, was by the court appointed as receiver for the corporation, and afterwards claims were allowed by the court in favor of certain creditors. The assets of the corporation were sold under the order of the court, and, the proceeds not being sufficient to satisfy the claims allowed, the court ordered this action begun by the receiver against these defendants as stockholders to recover their unpaid subscription for stock. The defendants answered, denying their liability, and upon trial the court found in favor of the plaintiff against some of the defendants, and entered a decree fixing their liability as stockholders for unpaid subscriptions, and the defendants have appealed.

1. The first question presented is as to the jurisdiction of the court over the subject matter of the action, and especially over the persons of these defendants. This action was begun in the district court for Douglas county, and these defendants, who are very numerous, do not reside in Douglas county, but summons was issued against them to the sheriffs of the respective counties of their residence and was there served upon them. They object that there was no jurisdiction to issue summons to other counties in the state because there was no joint liability between these defendants and the defendants who resided and were served in Douglas county.

Whether the remedy against the stockholders of an insolvent corporation is by an action at law or an action in equity depends upon the nature and extent of their liability. The defendants cite and rely upon the decision of this court in Burke v. Scheer, 89 Neb. 80, 130 N.W. 962, and the decision of the supreme court of the United States in Hale v. Allinson, 188 U.S. 56, 78, 47 L.Ed. 380, 23 S.Ct. 244. In the latter case the question is discussed at large and numerous authorities are cited. The point discussed and decided, however, relates wholly to cases in which the amount for which each individual stockholder is liable has been determined and fixed. The court said: "In this case, from the complainant's own bill, the amount demanded is the full amount of the par value of the shares held by each defendant." And the court quotes from Kennedy v. Gibson, 8 Wall. (U. S.) 498, 505, 19 L.Ed. 476: "Where the whole amount is sought to be recovered the proceeding must be at law. Where less is required the proceeding may be in equity, and in such case an interlocutory decree may be taken for contribution, and the case may stand over for the further action of the court, if such action should subsequently prove to be necessary, until the full amount of the liability is exhausted." This is the rule that this court has sought to apply in Burke v. Scheer, supra, and in other cases. When the amount that each individual stockholder is liable for is unknown, but depends upon facts not yet ascertained and upon equities to be adjusted between creditors or stockholders or both, "there is a community of interest among them in the questions of law and fact involved in the general controversy," as said in Hale v. Allinson, supra, and they are properly joined in an action in equity. But a stockholder who is liable at all events for a definite fixed amount has no community of interest in questions of law or fact with any other defendant. When there is a community of interest, tested by the above rule, the action may be brought in the county of the principal place of the business of the corporation where the corporation itself can be served, and summons against others necessary as defendants can be issued to the county where they can be served. It will be seen from the subsequent discussion that these defendants were properly served with summons in the respective counties of their residence, and there is no doubt of the jurisdiction of a court of equity.

2. In the original action against the corporation by Mr. Ege as one of the stockholders it was alleged in the petition: "That said defendant is a corporation duly organized and existing under and by virtue of the laws of the state of Nebraska for the purpose of operating an electric railway between Omaha, Nebraska, and Hastings, in the same state; that the promoters of the said concern in the past four years or more have failed to construct or operate said electric railway such as they pretended to construct; that said promoters and officers, during said time, by means of glaring advertisements in the newspapers of the city, advertised for the subscription of stock by making wilful, fraudulent and false representations, as shown by exhibit B, and hereby made a part of this petition; that said concern was authorized to operate an electric railway, whereas its charter permits it only to operate a steam railway. Said officers and promoters further represented in said advertisement that they would offer, as a premium and inducement to the purchasers of the stock, gold watches of 14 carat, and further that 'an investment of $ 280 buys ten shares, or, in other words, $ 1,000 worth of stock. The dividends will be declared on the $ 1,000 and not on the $ 280. The dividend on a 10 per cent. basis on $ 1,000 would be $ 100 a year. Therefore you would get $ 100 a year on an investment of $ 280; in other words, 35 per cent. on your money. Do you want anything better?' * * * Your petitioner further represents to the court that said officers and promoters have during said times collected by means of the sale of stock the sum of $ 55,000 or more, and that the said promoters and officers have actually expended for the purchase of property, right of way, grading, etc., about $ 6,000; * * * that said sum of $ 49,000 said officers and promoters have fraudulently appropriated to themselves." There are many other allegations of misconduct on the part of the organizers and officers of the corporation and fraudulent sale of stock. The petition also alleges: "Your petitioner further represents to the court that said officers and promoters have regularly paid themselves the salaries as aforesaid, notwithstanding the fact that accounts payable as per statement in exhibit F represents $ 5,540.12 in the nature of bills, claims for work and labor, and other matters that still remain unpaid. Your petitioner further represents that said company is insolvent, and has preferred certain of its creditors, and, further, that the schedule of assets and liabilities as shown in exhibit F is a gross and false misrepresentation of its true condition." The prayer of the petition is as follows: "Plaintiff therefore prays that an accounting be had, showing the gross receipts of money and the proceeds of the sale of stock, and in what manner and to what purpose such money was invested or paid. Plaintiff further prays that a receiver be appointed to take charge and custody of said company's property, real and personal, books, accounts, etc., for the benefit of its creditors and stockholders. Plaintiff further prays for a writ of injunction against said officers, restraining said officers from the further sale of said capital stock, and further restraining said officers from collecting any moneys due on unpaid subscriptions of stock sold. Plaintiff prays that he may have such other and further relief as equity may require, and that defendants pay the costs of this action."

This original petition stated a cause of action in equity, and when a receiver was appointed upon this petition, and the creditors whose claims were afterwards allowed had presented their claims to the receiver, it appeared from the record that the corporation had no property, real or personal, with which to satisfy the alleged claims of the creditors, and that if those claims were allowed, or any considerable part thereof, there would be no resources from which to satisfy them, unless it should be the liability of these defendants for the unpaid subscription to the stock of the corporation. It also appeared that by the terms of their contract with the corporation these defendants were not liable to the corporation for any further payments on their stock subscriptions. The liability of the corporation itself to the creditors and the tangible property which the corporation owned was the primary resource for the satisfaction of the claims of the creditors. Unless and until these resources fail, the creditors could have no claim against these defendants as stockholders. The liability of the stockholders, therefore, if any, to the creditors was a secondary liability, and rested not upon the same basis as the liability of the corporation itself. A finding that the corporation is indebted to certain of its stockholders and that their claims should be allowed is not necessarily a finding that the equities are such among the stockholders that certain of the stockholders should be required to contribute to a fund...