Eisler v. Eastern States Corp.

• Decision Date: 14 December 1943
• Docket Number: 34.
• Parties: EISLER v. EASTERN STATES CORPORATION.
• Court: Maryland Court of Appeals

35 A.2d 118

182 Md. 329

EISLER v. EASTERN STATES CORPORATION.

No. 34.

Court of Appeals of Maryland

December 14, 1943

Appeal from Circuit Court of Baltimore City; Emory H. Niles, Judge.

Action by Charles Eisler against the Eastern States Corporation for appointment of a receiver of defendant's property. From an order denying relief, plaintiff appeals.

Affirmed.

See also, 30 A.2d 867.

MARBURY J., dissenting.

William Saxon, of Baltimore, and William Harris, of Newark, New Jersey, for appellant.

Richard W. Case and R. E. Lee Marshall, both of Baltimore (Marshall Carey & Doub, of Baltimore, on the brief), for appellee.

Before SLOAN, C.J., and DELAPLAINE, GRASON, COLLINS, MARBURY MELVIN, ADAMS, and BAILEY, JJ.

ADAMS, Judge.

In this action the complainant, a stockholder in the defendant corporation, seeks the appointment of a receiver for the property and assets of the defendant, with full power in the receiver to institute legal proceedings against the officers and directors of the defendant corporation for the recovery of losses allegedly suffered by the defendant corporation by reason of the violation of their trust duties as said officers and directors of the defendant corporation.

Complainant alleges that in 1930 he purchased 200 shares of common stock of the defendant, paying for the same about $25.50 per share and that during the same year, as President for the Lesire Corporation, he purchased for said corporation 300 shares of common stock of the defendant corporation at approximately $42 per share. The Lesire Corporation is not a party to this suit, but plaintiff purports to act in its behalf. Defendant corporation's stock structure is as follows: (a) 40,000 shares, $7 cumulative Series 'A', preferred stock (No par value). (b) 60,000 shares, $6 cumulative Series 'B', preferred stock (No par value). (c) 572,132 shares of common stock (No par value).

Plaintiff is thus the owner of slightly less than 35/100,000 of the common stock.

Complainant charges that the majority of the Board of Directors of the defendant at the present time and for many years have not owned stock in the defendant corporation, but he sets out in the bill a statement as of April 26, 1942, which shows that the holdings of the officers and directors 'owned of record and beneficially' were 5,534 shares of preferred 'A', 11,524 of preferred 'B', and 238,250 shares of common (41% plus of total authorized common).

Complainant charges that the defendant corporation was organized in 1925 for the purpose of raising funds for the benefit of the St. Regis Paper Company, and that the general public was not advised of this purpose, and that in 1928 the sum of $18,577,593.69 was transferred to the St. Regis Paper Company for which the defendant received 1,000,000 shares of common stock of the said Paper Company. The bill alleges that the directorate of the defendant and said Paper Company were interlocking and that the purpose of the transaction was to further the individual interests of said officers and directors, and not to promote the interests of the defendant corporation. The bill alleges that at the time of the stock purchase in 1928, there were eight officers and directors common to the two corporations, only three of whom, however, are still officials of the defendant corporation.

Complainant avers a number of other transactions in the nature of investments which have resulted in heavy loss to the defendant corporation, alleging in many instances that the directorates of the corporation whose stock was acquired and the defendant corporation were interlocking and that the transaction was for the individual benefit of the officers and directors of the defendant, rather than for the best interests of the defendant.

A statement of the defendant corporation's investments as of December 31, 1941 shows a total of investments of $19,834,111.33 with a valuation based on market quotations of $1,956,258.

Complainant alleges that 'during a period of over 10 years and up to the present time there was hardly any activity in the business of the defendant corporation and that in the period between 1930 when the plaintiff became a stockholder, and June 1942, when the present proceeding was begun, the changes in the portfolio of the defendant corporation have been relatively insignificant compared with the aggregate amount of the portfolio. Some small amounts of securities have been sold. The only stocks which have been purchased in recent years consist of six blocks of 100 shares each of stocks listed on the New York Exchange and which were purchased on the Exchange. The purchases made by the defendant corporation since 1930 down to the present time would not exceed in the aggregate $150,000.00.'

The bill of complaint alleges that the defendant corporation has no funded debt and that the officers and directors, with the exception of the Assistant Secretary and Assistant Treasurer, are not paid any salaries by the defendant corporation.

The court is therefore asked to appoint a receiver for a solvent corporation which is not in danger of becoming insolvent or in any immediate danger because of transactions which occurred prior to 1930, when the complainant acquired his stock. The bill charges practically nothing that has happened since complainant became a shareholder except failure to dispose of investments made prior to 1930. The depression of 1929 may account for some of the losses of which complainant complains. It is significant that no other stockholder of the defendant corporation has come forward and sought to intervene. This suggests that practically all of the stockholders are satisfied with the present management of the company. Nor is there any averment in the bill that the complainant made any effort to obtain remedial action by application to the directors of the corporation or to the body of the shareholders. Unless the officers and directors against whom action is contemplated control the majority of the shares (and there is no averment that this is the case), relief could probably be had by application to the body of shareholders.

14 C.J., Corporations, §...