Hall v. McLuckey, 10230

• Decision Date: 27 June 1950
• Docket Number: No. 10230,10230
• Court: West Virginia Supreme Court
• Parties: HALL, v. McLUCKEY et al.

Page 280

60 S.E.2d 280

134 W.Va. 595

HALL, v. McLUCKEY et al.

No. 10230.

Supreme Court of Appeals of West Virginia.

Submitted April 25, 1950.

Decided June 27, 1950.

Syllabus by the court.

1. Under Code, 31-1-81, the holder of one-fifth or more of the outstanding capital stock of a corporation may maintain a suit to wind up the corporate affairs upon alleging and providing sufficient cause for dissolution.

2. In this jurisdiction equity has no inherent power to entertain and determine a suit upon the sole ground that the appointment of a special receiver is sought. But under Code, 31-1-82, a court of equity has jurisdiction at the suit of a creditor or stockholder of a corporation to appoint a special receiver to take charge of and administer its assets, pending its dissolution.

3. 'A bill filed by a minority stockholder of a corporation seeking relief against the managing officers upon the ground of mismanagement and misappropriation must allege the particular things done by such managing officers constituting mismanagement and the particular acts of misappropriation. It is not sufficient to charge that such managing officers have been guilty of mismanagement and have misappropriated the corporate funds, but the facts justifying these conclusions must be stated.' Pt. 4 Syl., Moore v. Lewisburg & R. E. Railway Co., 80 W.Va. 653 [93 S.E. 762, L.R.A.1918A, 1028].

4. If the allegations in a bill of complaint seeking the appointment of a receiver are denied by answer under oath; and affidavits filed in support of the allegations of the bill do not overcome the denials made in the answer, the appointment of a receiver should be denied.

5. An injunction should be refused where the allegations of a bill of complaint seeking injunctive relief are effectively traversed by a sworn answer, and sufficient proof supporting the allegations of such bill is not offered.

6. An audit of the business of a private corporation is not justified if the allegations and proof are insufficient to establish: (1) that there is danger of immediate loss or other emergency, or (2) that the managers of such corporation have been guilty of fraud or mismanagement.

7. 'An order of injunction is of no legal effect under * * * [Code, 53-5-9], unless the court requires a bond, or recites in the order that no bond is required for good cause, or unless the movant is a personal representative.' Pt. 4 Syl., Meyers v. Land Co., 107 W.Va. 632 .

J. W. Maxwell, Beckley, Kermit A. Locke, Beckley, for appellants.

Scherer, Bowers & File, Beckley, Clay S. Crouse, Beckley, for appellee.

LOVINS, President.

This suit instituted in the Circuit Court of Raleigh County by Earl A. Hall against Colin McLuckey and Beckley Music and Electric Company, a corporation, has for its purposes the appointment of a special receiver of the property and records of the corporation, the award of an injunction inhibiting McLuckey from managing the business of the corporation, an audit of the books of the corporation, and ultimately its dissolution, a sale of its assets and distribution of the proceeds of such sale.

Having overruled a demurrer to the bill of complaint, the trial court entered a decree appointing a special receiver of the property and records of the corporation, awarding an injunction, without bond, inhibiting McLuckey from managing the business of the corporation, and appointing a person to audit the books of the corporation under the supervision of the court. This Court granted an appeal.

No proof was offered, unless two affidavits filed by plaintiff in support of his motion for the appointment of a special receiver and the award of an injunction be so characterized. Therefore, we must rely, in the main, on the bill of complaint and the joint and separate answer of defendants. The allegations disclosed by those pleadings may be classified as those admitted and those denied. For the purposes of this opinion the events narrated in the two affidavits may be treated as having been shown by prima facie proof.

The bill of complaint alleges that prior to October 5, 1944, plaintiff was engaged in the business of selling merchandise through a corporation known as the Beckley Music Store, located at No. 110 South Fayette Street, Beckley. Plaintiff being ill, it became necessary for him to discontinue the management of the business. Having such object in view, he made an agreement with McLuckey, whereby McLuckey assumed the active management of the business; and a new corporation was organized known as the Beckley Music and Electric Company, hereinafter referred to as the 'corporation'. It was also agreed that plaintiff and McLuckey would invest equal amounts of money, or the equivalent in the business of the corporation. A corporate charter was obtained, a copy of which is filed with the bill of complaint as an exhibit. The charter conferred wide powers on the corporation, many of which are unnecessary to notice in this opinion. Among these powers conferred was the power 'to purchase, hold, sell and transfer shares of its own capital stock, bonds and other obligations of this corporation from time to time to such extent and in such manner and upon such terms as its board of directors may determine.'

The authorized capital of the corporation is $50,000, divided into five hundred shares of the par value of $100 each. The corporation commenced business with a subscription of fifteen shares of its capital stock, the plaintiff holding seven shares, McLuckey seven shares, and L. L. Scherer one share. The one share subscribed by L. L. Scherer was never issued, or if issued was endorsed and returned to the corporation. After the issuance of the charter the new corporation commenced business under the management of McLuckey, who, as its president, issued and delivered to plaintiff a certificate for one hundred four shares of its capital stock. Since October 5, 1944, McLuckey has been the active manager of the corporation. However, he has recently become ill, and probably has not engaged in its active management during the pendency of this suit.

Plaintiff made demand on McLuckey on June 14, 1949, for permission to examine the records and papers of the corporation, including the bylaws and minutes of all meetings of stockholders and directors, the stock certificate book, stock transfer ledger, annual audit for each year during its existence, copies of Federal income tax returns for each year, the open accounts of plaintiff and defendant with said corporation, and all other records necessary to a determination of its financial status.

McLuckey not having complied with the demand, on June 23, 1949, plaintiff's attorney advised McLuckey that such action as was necessary would be taken. This suit followed.

Momentarily disregarding the effect of defendants' demurrer to the bill of complaint, the following allegations of the bill of complaint are effectively denied by defendants' joint and separate answer: That plaintiff and defendant at the time of or prior to the formation of the corporation agreed to acquire, hold and continue to hold the capital stock of the corporation in equal shares, subject to the issuance of one share to a third person to meet the legal requirement relative to the minimum number of stockholders; that the one share so issued should be reassigned to the corporation after its formation; that the business would be carried on at the same location as the old business had been conducted; that McLuckey would be paid a salary of $300 a month as manager; that the net profits of the corporation would be paid out in dividends in equal amounts to plaintiff and McLuckey; that McLuckey refused plaintiff's request to call stockholders' meetings to organize the corporation and elect officers; that McLuckey has refused to meet with plaintiff for the purpose of holding stockholders' meetings and considering the business of the corporation; and that McLuckey has refused to furnish plaintiff with copies of the audits or to give information with reference to the corporation's business.

Plaintiff avers that he has not been paid any of the net profits of the business, and upon information and belief charges that McLuckey has managed the business of the corporation for his own benefit and converted the profits thereof to his own use to the prejudice of plaintiff's rights, which averments are denied. Defendants admit in their answer that no dividends have been paid, and assert that the net income from the corporation's business has been used for the benefit of the corporation and the extension of its business.

Plaintiff further charges, all of such charges being denied by defendants, that McLuckey has possession of the books and records of the corporation, and has refused to allow plaintiff to inspect the same; that plaintiff is in danger of losing his rightful interest; that McLuckey has exceeded his authority as manager; and that he has acted contrary to the law of West Virginia.

Plaintiff further avers that McLuckey has refused to enter into a voluntary dissolution of the corporation, and upon information and belief plaintiff alleges that in order to maintain the issues on his part properly it is necessary for him to have discovery of the following: (a) If the defendant corporation hsa adopted by-laws, had if so the provisions thereof; (b) if any meetings of stockholders and directors of said corporation have been held, the actions taken at said meetings; (c) the amount of capital stock issued and to whom; (d) a disclosure of the annual audits of the corporation's business, since its incorporation and the present status of such business; (e) an itemized statement of the purchase from said corporation made by McLuckey; (f) the dates, amounts and purposes of all withdrawals from the funds of said corporation by the defendant McLuckey; and (g) such other information as may be necessary with reference to the affairs of the corporation.

Plaintiff prays that ...