Ervin v. Oregon Ry. & Nav. Co.

• Decision Date: 06 June 1884
• Citation: 20 F. 577
• Parties: ERVIN and others v. OREGON RY. & NAV. CO. and another.
• Court: U.S. District Court — Southern District of New York

20 F. 577

ERVIN and others v. OREGON RY. & NAV. CO. and another.

United States Circuit Court, S.D. New York.

June 6, 1884

Butler Stillman & Butler, for complainants.

Holmes & Adams, for defendants.

WALLACE J.

The principal questions raised by the demurrers to this bill are whether the Oregon Steam Navigation Company is not an indispensable party whose absence renders the bill defective and whether the bill states a cause of action in equity. The substantive allegations of the bill are that at the time the several transactions complained of took place the complainants were stockholders of the Oregon Steam Navigation Company, a corporation of the state of Oregon; that in 1879 that company had a capital of $5,000,000, divided into 50,000 shares, was prosperous, owned large properties, and had a valuable business; that in that year the defendant Villard conceived the scheme of acquiring control of the company and its property for his own benefit, and with this view caused another corporation, the defendant the Oregon Railway & Navigation Company to be organized under the laws of Oregon, to which the property of the first-named company was to be transferred; that he procured himself to be elected president of the new company; that he then purchased 40,000 shares of the old company and transferred his purchase to the new company, receiving for himself a large profit by the transaction; that thereupon he and the new company concerted and consummated the design of winding up the old company, of acquiring all its property and business for the benefit of the new company, and of excluding the minority stockholders of the old company from their just interest in the assets that in this behalf they caused a board of directors favorable to their scheme to be chosen for the old company by voting the stock owned by the new company, and, under a statute of Oregon, which permits such a corporation upon a vote of a majority of the stock to dissolve and dispose of its property, the defendants procured the dissolution and a sale and transfer of all the property and franchises of the old corporation to the new corporation.

Respecting the proceedings which took place, and the manner in which the dissolution of the old company and the transfer of its property and franchises to the new company was effected, the bill sets forth with particularity and in detail the history of the transactions. Villard, who was president of the new company, was elected president of the old company, and the directors of the new company were elected directors of the old company. Resolutions were then adopted concurrently by the board of directors of each company, on the part of the old company proposing, and on the part of the new company accepting, the purchase of all the property and franchises of the old company by the new company, at a valuation to be fixed by two appraisers, one to be selected by the old company, and one by the new company. The appraisers were selected, and agreed upon a valuation of the property at $2,300,000, which was equivalent to 46 per cent. of the par value of the stock of the old company. Thereupon the requisite corporate action was taken by both companies to sanction and confirm the transfer at the price fixed by the appraisers, concluding with a meeting of the stockholders of the old company called to effect a valid dissolution. At this meeting 46,249 shares of stock were represented, all of which were owned by the new company, or in its interest, except 456 shares owned by one Goldsmith, who had opposed the proceeding, but had been placated by the defendants. By the vote of the stock owned by the old company, a resolution was adopted confirming all that had been done by the directors; confirming the sale at the appraisement which had been made; authorizing the dissolution of the corporation; and directing the directors to carry into effect the dissolution, the sale, the settling of its business, the division of the proceeds of the sale among the stockholders, and the cancellation of all outstanding certificates of stock with all practicable dispatch. The resolution, so far as it relates to the dissolution, is as follows: 'That the said Oregon Steam Navigation Company be and hereby is dissolved, to take effect upon the transfer of the company's property, the settling of its business, and the division of its capital stock. ' The board of directors then met and took formal action pursuant to the resolution of the stockholders; and thereafter sent notice, under the company's seal, and signed by its treasurer, to all stockholders, stating that the company was duly dissolved, all its property conveyed to the Oregon Railway & Navigation Company, and that a final dividend of $46.97 per share had been declared payable to each stockholder upon the surrender of his certificates of stock.

The bill also alleges that the property of the old company thus sold was appraised at a grossly inadequate price; that no money passed or has ever been actually paid by the new company to the old company, although the directors went through the form,-- those of one company delivering, and those of the other of accepting, a check for the purchase money; that such stockholders of the old company as have surrendered their certificates of stock have been paid the final dividend by the new company, and the new company now holds itself out as ready to pay the remaining stockholders in the same way.

The complainants having refused to consent to the proceedings which have taken place, or to participate in the so-called dividend, have filed this bill in behalf of all other stockholders who may desire to join. The prayer for relief is, among other things, that the several acts of the defendants complained of be declared fraudulent and void; that the defendants be adjudged to pay complainants, and such other stockholders as may join them, their proportionate share of the value of all the property and franchises of the Oregon Steam Navigation Company; and that the Oregon Railway & Navigation Company be adjudged to hold the property it acquired as trustee for the complainants, in proportion to their holdings of stock in the former company, and that complainants have a lien thereon.

For the purposes of the demurrers, and assuming the facts alleged in the bill to be true, the case disclosed may be briefly stated as follows: A majority of the stockholders of a corporation resolve to avail themselves of their power as a quorum to sacrifice the interests of the minority stockholders for their own profit, by dissolving the corporation, and selling its property and franchises to themselves at half their real value. This scheme they have carried out, and now retain its fruits. They have thrust out the complainants, the minority from their position as stockholders, terminating their relations with the corporation as such, and have deprived them from realizing what would belong to them upon...