Flaacke v. Winona Mills Co.

• Citation: 104 Conn. 665,134 A. 265
• Court: Supreme Court of Connecticut
• Decision Date: 30 July 1926
• Parties: FLAACKE v. WINONA MILLS CO. ET AL.

134 A. 265

104 Conn. 665

FLAACKE v. WINONA MILLS CO. ET AL.

Supreme Court of Errors of Connecticut.

July 30, 1926

Appeal from Superior Court, New Haven County; Isaac Wolfe and Earnest C. Simpson, Judges.

Action by George W. Flaacke, receiver of a foreign corporation against the Winona Mills Company and others, to set aside certain conveyances of property of such corporation to the defendants, and for an accounting, the appointment of receiver, and other relief. Plaintiff's demurrer to defendants' substituted plea to the jurisdiction and in abatement was overruled, and the issues raised by it were tried to the court and found for the defendants. From the judgment rendered thereon, plaintiff appeals. No error.

In 1913 the Columbia Hosiery Company, a New Jersey corporation took steps looking to a voluntary dissolution. This was done in pursuance of a plan to carry on the business thereafter by means of a corporation to be organized under the laws of Connecticut, to which were to be transferred all the assets of the New Jersey corporation, and the stock of which was to be issued to the stockholders of that corporation. Resolutions specifically providing for these changes were presented at stockholders' meetings, at which every share of stock in the corporation was represented, and were unanimously adopted. The written consent of all stockholders to the dissolution of the corporation was filed in the office of the secretary of the state of New Jersey, and a certificate of dissolution was issued. Thereafter a Connecticut corporation, the defendant Winona Mills Hosiery Company, was organized, the assets of the Columbia Hosiery Company were turned over to it, and shares of stock in it were issued to all the holders of stock in the Columbia Hosiery Company, except that 15 shares of the latter stock were never surrendered for exchange. Later, the Winona Mills Hosiery Company consolidated with another corporation, the Winona Mills Underwear Company, and the defendant Winona Mills Company was organized, also under the laws of Connecticut.

One Sariol, after the issuance of the certificate of dissolution of the Columbia Hosiery Company, purchased certain shares of its stock, which he still holds. In November, 1921, he brought an action in the superior court in New Haven county and attached the property of the Winona Mills Company, and in that action, which is still pending, he alleges that he owns 15 shares of stock of the Columbia Hosiery Company, and claims to recover such a portion of the assets of the Winona Mills Company as would be represented by those shares. On November 12, 1924, upon his petition, the Court of Chancery of New Jersey appointed the plaintiff receiver of the Columbia Hosiery Company, on the ground that its directors, as trustees, had not settled its affairs as they should have done, and directed him to take charge of the estate and effects of the corporation, to collect its debts and property, by suit or otherwise, and to do all other acts which the corporation might have done were it in being, and which might be necessary for the final settlement of its unfinished business.

Thereupon the receiver brought the present action. The gist of it is that the directors of the Columbia Hosiery Company, as trustees, upon its dissolution, neglected to settle its affairs, or to organize a Connecticut corporation in accordance with the votes of its stockholders, but themselves for more than six years carried on the business, holding themselves out as being the representatives of a continuing corporation; that when finally a Connecticut corporation was organized, the assets of the Columbia Hosiery Company turned over to it, and shares of stock in it issued in place of the stock of the Columbia Hosiery Company, all the stockholders did not assent or accept the stock of the new company; that the organization of the Connecticut company was a mere pretense and colorable compliance with the votes of the stockholders of the Columbia Hosiery Company; that the acts of the directors constituted a violation of the trust upon which they were administering the affairs of that corporation after its dissolution; and that the two defendant corporations took its assets with knowledge of the trust upon which it was held. The relief sought is the setting aside of the transfers of the assets of the Columbia Hosiery Company to the defendant corporations, and a conveyance of the property to the plaintiff receiver, an accounting by them for their use and enjoyment of the property, an accounting by one of the directors of the Columbia Hosiery Company, named as an individual defendant, as regards the use of the assets of that Company by him and the other trustees, and the appointment of a temporary receiver.

To this complaint the defendants filed a plea in abatement on the ground that the plaintiff, as a receiver appointed by the Chancery Court of New Jersey, had no right to sue in our courts; that, if the suit were maintained, it would adversely affect citizens of Connecticut who are stockholders in or creditors of the Winona Mills Company; and that there are no creditors of the Columbia Hosiery Company, but the action is brought for the sole benefit of Sariol, under pretense of a suit by the receiver. A demurrer to the plea being overruled and a hearing had, the trial court has found the facts stated above, and in addition the following: The Winona Mills Company has outstanding stock to the amount of $242,100; its assets, exclusive of good will, amounted on December 31 1924, to $282,000, and its liabilities, to $131,000, but it was able to pay its bills as they became due in the regular course of business. The Winona Mills Company has had extensive business relations with and has incurred large obligations to citizens of Connecticut, which are now outstanding. A majority of the stockholders of the Winona Mills Underwear Company were and are residents of Connecticut, and its assets have been mingled with those of the Winona Mills Hosiery Company. If the plaintiff is permitted to maintain this action, it will be prejudicial to the former stockholders of the Winona Mills Hosiery Company and to local stockholders and creditors of the Winona Mills Company, and it will disrupt and bankrupt that corporation. There are no creditors of the Columbia Hosiery Company. Sariol was represented at the stockholders' meeting of the Winona Mills Hosiery Company at which the merger of that corporation into the Winona Mills Company was determined upon, and made no protest. He has been offered the privilege of converting the stock of the Columbia Hosiery Company...