Fisher v. Bankers' Fire & Marine Ins. Co.

• Decision Date: 07 June 1934
• Docket Number: 6 Div. 544.
• Citation: 229 Ala. 173,155 So. 538
• Parties: FISHER et al. v. BANKERS' FIRE & MARINE INS. CO.
• Court: Alabama Supreme Court

155 So. 538

229 Ala. 173

FISHER et al. v. BANKERS' FIRE & MARINE INS. CO.

6 Div. 544.

Supreme Court of Alabama

June 7, 1934

Rehearing Denied June 28, 1934.

Appeal from Circuit Court, Jefferson County; Wm. M. Walker, Judge.

Bill by Morris Fisher and Isadore Sperling against the Bankers' Fire & Marine Insurance Company, and intervention by Charles C. Greer, Superintendent of Insurance. From a decree sustaining demurrer to the bill and dismissing it complainants appeal.

Reversed and remanded.

This bill is by the appellants as minority stockholders, filed against the corporation, as sole defendant, seeking to restrain and enjoin "the respondent, its officers and agents from further carrying on its business," and for the appointment of a "temporary receiver," with authority "to carry on the business of the respondent to the end that it may be promptly liquidated and dissolved," for its dissolution and the distribution of its assets among the stockholders according to their respective holdings, and for general relief.

The bill alleges:

That the defendant is a domestic corporation, organized under the laws of the state, in February, 1929, "principally to engage in the business to make insurance on dwellings and other structures and personal property against loss by fire or tornado"; that said defendant sold 85,000 shares of its stock to numerous and sundry persons, for which it received, over and above the expense incident to the promotion and sale of its stock, upward of $783,000, the greater part of which has been invested in interest-bearing securities, consisting of "bonds of the State of Alabama and political subdivisions thereof, the income from which is easily received by way of clipping coupons and is such" holdings as "may be easily liquidated"; that up to the year 1930, less than twelve months, the defendant engaged principally in the business of writing fire insurance "that, thereupon it ceased to carry on such business and entered into treaty with the Continental Insurance Company whereby the Continental Insurance Company was to accept 100% of the insurance risks of the respondent, for which the respondent participates in 15% of the net profit realized from the business written under the treaty; that to earn its part of the profit, the respondent is put to the same volume and cost of accounting and field force as if it undertook to carry the risk itself and make the entire profit."

That during its existence and as a result of its venture into business, it has suffered a total loss of $471,627.36, and its total earnings, including interest on its investments, aggregate $103,203.94, leaving a net loss of $368,423.42.

"That the original business of the corporation has wholly failed; that the pretended business now conducted-of an insurance broker-and the passing on of all of its risk to a real insurance company, is only carried on for the purpose of retaining the officers and their salaries and controlling the income from the said investments. * * * That the only pretense or justification for continuing this company, which has ceased to do the business for which it was principally incorporated, is that in the future it may go back to the principal business, when and if such business becomes profitable; that the pretense is based upon the further wrong, that pending such hope, the stockholders' money now invested in readily liquidated assets will be held in hostage.

"That under the claim of right not to conduct the primary business for which it was incorporated and to continue to conduct an unprofitable secondary business, without any hope of paying dividends, those in charge are carrying on a campaign whereby with the stockholders' money forcing the discouraged stockholders to sell to the company their stock at far less than it is worth upon a bona fide liquidation of the company; that this is being done by making the stockholders realize that although their stock is worth upon liquidation more than being offered, that inasmuch as those in charge can defeat an attempt at liquidation, then the stockholder is left in the situation of accepting what those in control offer to pay him out of the assets of the corporation or get no use what-soever of their money for an indefinite time.

"That this scheme is carried on by those in control for a further purpose, that is to say, by acquiring the stock of these uninformed or discouraged stockholders at far less than its book value, they set about to set up the difference between the purchase price of such stock and the book value as a profit and thereby attempt to absorb the other losses reflected in the operation of the company.

"That at the end of 1932, the respondent purchased par value of its stock to the amount of $59,772.50, for which it paid to the stockholders selling the same, $30,408.96; that to persuade the stockholders to so sell said stock the respondent employed high pressure salesmen to acquire said stock from their discouraged or uninformed stockholders and paid traveling expenses for the acquiring of the same the large sum of $4,269.28; thereupon the respondent set up as capital profit from these transactions, $25,094.26.

"That this process has been further carried on; that the scheme now in operation is for one of the directors, engaged in the brokerage business, to pretend that he is an independent broker and to solicit and circularize the stockholders by an offer to purchase their stock at $2.00 a share; that upon such offer being accepted the said broker director makes a purchase and thereupon promptly delivers the stock so purchased to the respondent, which pays the money therefor or credits the broker director, out of the moneys theretofore furnished him for that purpose, at all times concealing the fact it is the respondent corporation, under the pretense of an independent broker, circularizing and soliciting its own stockholders for the purchase of their stock; that obviously if the stock has a book value less than $2.00 offered, it is a fraud on the other stockholders to pay the selling stockholder $2.00; on the contrary, if the book value of the stock be worth more than $2.00, it is a fraud upon the selling stockholder, unless full and fair disclosure be made to him of all the circumstances known to the corporation as to its value. That the purpose and motive of this unique corporate adventure as to purchasing its own stock from its stockholders is motivated solely on the desire of the officers in control and receiving salaries as such to continue to carry on the corporation and to pretend to absorb its losses at the expense of the discouraged or uninformed stockholders and to hold on to their offices and the salaries therefrom which otherwise would and should be discontinued. * * *

"That the respondent corporation has failed of the purposes for which it was organized and for that reason should be dissolved or the respondent cannot continue a profitable business for the reason that it is but a question of time when the annual charges and expenses will absorb the entire assets of the company and there is no reasonable probability of the increase of the assets or the income in excess of the current expenses. * * *

"That it would be futile and unavailing to apply to the directors of the corporation for relief, for that they are dominated and controlled by the officers who are interested in continuing the corporation for their own interest, and that all efforts heretofore made to present matters to the stockholders have been thwarted by the efforts of the corporation with the use of corporate funds to carry on misleading propaganda to defeat the securing of the dissolution.

"That complainants do not know the names of other stockholders and have not been able after due diligence to ascertain their names and the amount of their holdings."

The defendant interposed a demurrer to the bill, assigning among other grounds, the following:

"For that in so far as said complaint seeks to dissolve or liquidate the affairs of respondent corporation, the same is without equity. * * *

"For that the respondent corporation is subject to dissolution at the instance of the State of Alabama only.

"For there is a non-joinder of parties in this, that the Superintendent of Insurance is not made a party to said proceedings. * * *

"For that it affirmatively appears from the averments of said complaint that there are other stockholders not made parties to these proceedings; and no reason is averred why such stockholders are not made parties. * * *

"For that chapter 306 of the Code of 1923 abrogated the common law remedy of stockholders to apply for a receiver and seek dissolution as prayed for in the complaint

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