Heinz v. National Bank of Commerce of St Louis

• Decision Date: 04 September 1916
• Docket Number: 4531.
• Citation: 237 F. 942
• Parties: HEINZ v. NATIONAL BANK OF COMMERCE IN ST. LOUIS et al.
• Court: U.S. Court of Appeals — Eighth Circuit

237 F. 942

HEINZ v. NATIONAL BANK OF COMMERCE IN ST. LOUIS et al.

No. 4531.

United States Court of Appeals, Eighth Circuit.

September 4, 1916

Dorsey A. Jamison and Shepard Barclay, both of St. Louis, Mo (Jamison & Thomas and Barclay, Orthwein & Wallace, all of St Louis, Mo., on the brief), for appellant.

H. S Priest, of St. Louis, Mo. (Boyle & Priest, William E. Baird and George T. Priest, all of St. Louis, Mo., on the brief), for appellees.

Before SANBORN, Circuit Judge, and REED and BOOTH, District Judges.

BOOTH District Judge.

Suit in equity by a stockholder of the defendant bank, a corporation organized under the national banking laws, to compel the defendant B. F. Edwards to refund to the bank the sum of $50,000, which the plaintiff alleges was paid to him by order of the board of directors, gratuitously and without consideration. The trial court, upon the hearing, dismissed the suit for want of equity. The following facts appear from the record:

That the defendant bank is a corporation engaged in the banking business at St. Louis, Mo., and organized under the National Banking Act; that the plaintiff Heinz is a resident of the state of Illinois, and a stockholder in said bank; that on the 24th of April 1913, the defendant B. F. Edwards was president of said bank, and had been an officer of said bank, or connected therewith as an employe, for more than 25 years, and was drawing a salary in the year 1913 of $25,000 a year, and for several years prior thereto had drawn the same or a larger salary. On April 24, 1913, the following instrument was executed by Mr. Edwards:

'St. Louis, April 24, 1913.

'In consideration of the payment of the sum of fifty thousand dollars ($50,000), this day made to B. F. Edwards by the National Bank of Commerce in St. Louis, he hereby waives participation in the pension fund, salary for the remainder of the year, and all other claims against said bank, and agrees not to enter the employ or engage in the business of any St. Louis bank or trust company, nor use his influence in behalf of any other bank or trust company, prior to December 31, 1913.

(Signed) B. F. Edwards.'

This instrument was approved on the last-mentioned date by a resolution of the board of directors of the bank, and the money paid to Mr. Edwards. On said date Mr. Edwards resigned from the bank, and thereafter and during the remainder of that year did not enter into the employ or engage in the business of any St. Louis bank or trust company.

In the year 1900 the board of directors of said bank, pursuant to a resolution of the stockholders, established a pension fund for the officers and employes of the bank, the rules and regulations concerning which were by the resolution of the stockholders, to be enacted from time to time by the board of directors. Pursuant to said vote of the stockholders, the board of directors thereafter adopted certain rules and regulations in reference to said pension fund, and among others the following:

'(a) If the employment has been continuous for five years, then during the period of disability the pensioner shall be paid monthly 10 per cent. of the average monthly salary received by him during said 5 years of service. If the time of employment has been over 5 years, then 2 per cent. shall be added for each full year of employment until 25 years or more is reached, when the pensioner shall be paid monthly 50 per cent. of the average monthly salary received by him during said entire term of service; but no pension shall monthly exceed 50 per cent. of the average monthly salary for the whole time of service.

'(b) No officer or employe, whose connection with the bank is severed before the expiration of 25 years of continuous service, for any reason other than physical disability, shall receive any benefit from the fund.

'(c) Officers and employes severing their connection with the bank after 25 years or more of continuous service for any reason whatever, other than neglect of duty, shall receive pensions as above provided, such pensions, however to cease if the beneficiary accepts a position in any other bank or trust company.'

It is claimed, upon behalf of the appellant, that the instrument above set forth, signed by Mr. Edwards, approved by the board of directors, and purporting to be a contract, was ultra vires the bank, that it was without consideration and that the payment of the money thereunder to Mr. Edwards was a mere gratuity. It is claimed on the part of the appellees that the contract was not ultra vires the bank, and that it was upon a good and valuable consideration. It is further claimed by the appellees that the plaintiff cannot maintain the present suit, because he has not shown compliance with equity rule No. 27 (198 F. xxv, 115 C.C.A. xxv), which reads as follows

'Every bill brought by one or more stockholders in a corporation against the corporation and other parties, founded on rights which may properly be asserted by the corporation, must be verified by oath, and must contain an allegation that the plaintiff was a shareholder at the time of the transaction of which he complains, or that his share had devolved on him since by operation of law, and that the suit is not a collusive one to confer on a court of the United States jurisdiction of a case of which it would not otherwise have cognizance. It must also set forth with particularity the efforts of the plaintiff to secure such action as he desires on the part of the managing directors or trustees, and, if necessary, of the shareholders, and the causes of his failure to obtain such action, or the reasons for not making such effort.'

Two questions present themselves for consideration: First, whether the plaintiff can maintain the present suit; second, whether there was any consideration for the payment by the bank to Edwards of the $50,000 in question.

Equity rule No. 27 is the same as former equity rule No. 94, with the following clause added to the original rule: 'Or the reasons for not making such effort. ' The reason for the rule was twofold.

In Del. & Hudson Ry. v. Railway Co., 213 U.S. 435, 29 Sup.Ct. 540, 53 L.Ed. 862, the court said:

'The purpose of rule No. 94 hardly needs explanation. It is intended to secure the federal courts from imposition upon their jurisdiction and recognizes the right of the corporate directory to corporate control; in other words, to make the corporation paramount, even when its rights are to be protected or sought through litigation. Cases in this court have indicated such right. But the directory may be derelict and the interests of the stockholders put in peril, and a case hence arises in which the right of protecting the corporation accrues to them. Rule 94 expresses primarily the conditions which must precede the exercise of such right, but emergencies may arise in which the antagonism between the directory and the corporate interest may be unmistakable, and the requirements of the rule may be dispensed with, or, it is more accurate to say, do not apply.'

In Hawes v. Oakland, 104 U.S. 450, 26 L.Ed. 827, four classes of cases are given in which, under certain circumstances, a stockholder in a corporation may sustain in a court of equity, in his own name, a suit founded on a right of action existing in the corporation itself and in which the corporation itself is the appropriate plaintiff. Those classes are: (1) Actions, or threatened actions, by directors beyond the authority conferred upon them by their charter, or other sources of organization. (2) Fraudulent transactions by the acting managers, in connection with some other party, or among themselves, or with other shareholders, as will result in serious injury. (3) Where the board of directors are acting for their own interests in a manner destructive of the corporation itself, or of its stockholders. (4) Where a majority of the stockholders are oppressively and illegally pursuing a course in the name of the corporation, in violation of the rights of the other stockholders. The court in its opinion said (104 U.S. 460, 26 L.Ed. 827):

'But, in addition to the existence of grievances which call for this kind of relief, it is equally important that, before the shareholder is permitted in his own name to institute and conduct a litigation which usually belongs to the corporation, he should show to the satisfaction of the court that he has exhausted all the means within his reach to obtain, within the corporation itself, the redress of his grievances, or action in conformity to his wishes. He must make an earnest, not a simulated, effort, with the managing body of the corporation, to induce remedial action on their part, and this must be made apparent to the court. If time permits or has permitted, he must show, if he fails with the directors, that he has made an honest effort to obtain action by the stockholders as a body, in the matter of which he complains. And he must show a case, if this is not done, where it could not be done, or it was not reasonable to require it. The efforts to induce such action as complainant desires on the part of the directors, and of the shareholders when that is necessary, and the cause of failure in these efforts should be stated with particularity, and an allegation that complainant was a shareholder at the time of the transactions of which he complains, or that his shares have devolved on him since by operation of law, and that the suit is not a collusive one to confer on a court of the United States jurisdiction in a case of which it could otherwise have no cognizance, should be in the bill, which should be verified by affidavit.'

Hawes v. Oakland was a case where a stockholder in a corporation filed a bill, on behalf of himself and other stockholders, to...