Fleer v. Frank H. Fleer Corp.

• Decision Date: 30 June 1924
• Citation: 14 Del.Ch. 277,125 A. 411
• Court: Court of Chancery of Delaware
• Parties: ROBERT FLEER, v. FRANK H. FLEER CORPORATION, a corporation existing under the laws of the State of Delaware, GILBERT B. MUSTIN, NEILSON M. MATTHEWS, WALTER HENTSCHEL, M. RUSSELL BERGER, H. E. POTTER and E. W. HOPPER

125 A. 411

14 Del.Ch. 277

ROBERT FLEER, v. FRANK H. FLEER CORPORATION, a corporation existing under the laws of the State of Delaware, GILBERT B. MUSTIN, NEILSON M. MATTHEWS, WALTER HENTSCHEL, M. RUSSELL BERGER, H. E. POTTER and E. W. HOPPER

Court of Chancery of Delaware, New Castle

June 30, 1924

BILL TO DECLARE VOID CERTAIN CONTRACTS under which certain shares of the capital stock of the defendant corporation were issued to the defendants, Gilbert B. Mustin and Neilson M. Matthews respectively, to secure a return to said corporation of said shares of stock, to enjoin said Mustin and Matthews from voting or otherwise asserting rights of ownership of said shares, to declare void a certain meeting of stockholders of said corporation and the attempted election of directors thereat, and to secure the holding of another meeting of stockholders under the supervision of the Chancellor for the election of directors for said corporation for the year ending January 21, 1925.

The bill is filed by the complainant on behalf of himself and all other stockholders of the said corporation who may be made parties to and contribute to the expense of the suit. The board of directors consists of four members. The stockholders are alleged to be divided into two groups who are in disagreement as to the policies to be pursued by the corporation, the complainant being associated with one group and the defendants Mustin and Matthews, whose acts are complained of, being associated with the other group. On the eve of the annual stockholders' meeting to be held on January 21, 1924, the stockholdings of the two groups were as follows: 1,301.25 shares of stock held by the complainant and his associates, and 1,298.75 shares held by Mustin and Matthews and their associates.

The bill charges that with the design of controlling the voting stock of the corporation and through it to secure control of the board of directors, Mustin and Matthews who were directors and respectively president and vice-president of the corporation, and who dominated and controlled the board did two things, viz., (a) they caused to be executed two contracts ostensibly on behalf of the corporation, one with each of themselves, whereby the corporation became obligated to issue certain shares of stock to each of them, which contracts are alleged never to have been authorized or, if so, never to have been properly authorized, by the board of directors of the corporation and which contracts, it is alleged, the directors of the corporation could not lawfully authorize; and, having assumed to bind the corporation by these contracts, they afterwards, to-wit, on December 15 1923, just prior to the annual meeting of stockholders which was to be held and was held on January 21, 1924, caused to be issued to each of themselves 63 1/3 shares of the voting stock of the corporation, notwithstanding the protest of the complainant and those stockholders associated with him, and notwithstanding the fact that the alleged contracts under which said shares were issued were illegal and void; (b) they (Mustin and Matthews) in pursuance of a plan and scheme to control the said annual meeting of the stockholders, by certain false and fraudulent representations made to one Searles, who was the then owner of ten shares of the common stock of the corporation, induced him to colorably assign and transfer five of his said shares to the corporation, whereby the said Mustin and Matthews were able to secure control of the annual meeting of stockholders irrespective of the said 63 1/3 shares of stock so as aforesaid issued to each of them.

The bill further alleges that the annual meeting of stockholders was held on January 21, 1924; that Mustin and Mathews voted at said meeting 1,425.41 shares which included the 126 2/3 shares issued to the two of them in the manner above set forth for the set of directors nominated by themselves; that the complainant and his associates voted 1,291.25 shares of stock held by them for another set of directors; and that the said Searles attempted to vote his ten shares of stock as did the complainant and his associates, but that the said Mustin and Matthews would not permit the Searles stock to be counted, all of which was contrary to the protests of the complainant. The bill does not specifically so state, but its plain inferences are that the directors voted for by the Mustin-Matthews group were declared elected and are now in charge of the corporation's affairs.

It is further alleged that the issuance of the 63 1/3 shares to Mustin and Matthews respectively was in violation of the pre-emptive rights of other stockholders. But no relief is asked for on this ground, none at least to the extent of letting the complainant and all other stockholders in for a pro rata subscription to the shares thus attempted to be issued.

The prayers are, that the two alleged contracts be decreed to be void and cancelled; that the stock issued under them be decreed to be returned to the corporation; that an injunction issue against the corporation and the directors elected at the annual meeting of stockholders on January 21, 1924 restraining the directors from acting as such and the corporation from permitting them to act as such; that the said annual stockholders' meeting and the election of directors thereat be decreed to be void; and that another stockholders' meeting be called and held under the supervision of the Chancellor for the election of directors.

The cause now comes on to be heard upon a demurrer to the bill, filed by the corporation defendant.

Demurrer overruled.

William S. Hilles, for the complainant.

Aaron Finger, for the defendant corporation.

OPINION

THE CHANCELLOR

While the demurrer presents eleven grounds, the solicitor for the defendant states them generally, as follows:

1. That the bill is multifarious.

2. That insofar as there may be any right on behalf of the corporation to cancel the contracts referred to in the bill there is no allegation that a request or demand has been made on the corporation to proceed in its own name, nor is there any allegation that the corporation has refused to cause said contracts to be cancelled, and the bill contains no allegation of reasons why demand was not made upon the corporation or that such demand, if made, would have been futile and unavailable.

3. That as to the right to a decree declaring the election of directors at the stockholders' meeting to be void, there is no allegation that the said Searles was a stockholder of record and entitled to vote on the date of the meeting, nor does the bill set forth who the valid stockholders of record of the corporation were at the time of said meeting.

These objections will be disposed of in the order of their statement.

First. Is the bill multifarious? The contention in this connection is that it is not permissible to combine in one bill a demand for the assertion of rights belonging to the complainant individually with demands for the assertion of rights belonging to the corporation. Harden v. Eastern States Public Service Co., ante p. 156, is cited in support of the principle contended for and supports it. That case was one where stockholders sought to secure an accounting for alleged wrongs done to the corporation, and at the same time to secure an inspection of books and papers. It is very clear that the two purposes sought by the bill were in nowise related to each other. While in Hopper v. Fesler Sales Co., 11 Del. Ch. 209, 99 A. 82, it was said that one test as to whether a bill is multifarious may be to inquire whether one defense could be made to the whole bill, yet it was clearly indicated that such test was not the only one to be applied nor a fair and practicable one in all cases. In Cahall, Rec'r., v. Lofland, et al., 12 Del. Ch. 162, 108 A. 752, the test seems to have been whether the bill had a single object though based on three forms or groups of transactions and whether the convenient administration of justice would suggest that the various matters complained against be litigated in the same suit. In Ripka v. Gwinn, ante p. 101, it was held that though fraud spreads itself out in various directions and various forms of relief are necessary to correct its wrongs, a bill which seeks these various forms of relief is not multifarious, the fraud supplying a unity of action to the various grounds of specific complaint. It is needless to refer to the multitude of reported cases on this question of multifariousness for the purpose of endeavoring to extract therefrom general rules. As observed in 1 Daniell's Chancery Pleading and Practice, (4th Ed.) 334:

"The cases upon the subject are extremely various; and the court, in deciding them, seems to have considered what was convenient in particular cases, rather than to have attempted to lay down an absolute rule."

Sir John Leach in Salvidge v. Hyde, 5 Mad. 146, indicated that the most satisfactory test generally speaking is to inquire whether there be singleness in the object of the suit.

What are the objects of the bill filed in the instant case? As stated by the solicitor for the defendant they are summarized, as follows:

(a) Cancellation of the contract between the corporation and Mustin.

(b) Cancellation of the contract between the corporation and Matthews.

(c) To have the stockholders' meeting of January 21, 1924, declared void and to secure the holding of another stockholders' meeting.

(d) Cancellation of the stock issued to Mustin and Matthews pursuant to their respective contracts with the corporation.

It is argued that the first two objects sought by the bill seek to secure rights which belong to the corporation and that therefore as to them the bill is properly a stockholder's bill;...