Hennessy v. Tacoma Smelting & Refining Co.

• Decision Date: 09 March 1904
• Docket Number: 961.
• Citation: 129 F. 40
• Parties: HENNESSY et al. v. TACOMA SMELTING & REFINING CO. et al.
• Court: U.S. Court of Appeals — Ninth Circuit

129 F. 40

HENNESSY et al. v. TACOMA SMELTING & REFINING CO. et al.

No. 961.

United States Court of Appeals, Ninth Circuit.

March 9, 1904

On December 6, 1898, the Tacoma Smelting & Refining Company, a corporation owning and operating a smelter near Tacoma, in the state of Washington, made a lease of its entire smelting plant and all its property for a term of 10 years to the Tacoma Smelting Company, a corporation created for the purpose of taking the lease. The first company will in this opinion be designated the 'old company,' and the second company the 'new company.' The resolution to execute the lease was approved by the majority of the stockholders of the old company, but was opposed by a minority representing from 12 to 15 per cent. of the stock, who filed a written protest against the same. Shortly after its execution the minority stockholders requested the trustees of the old company to take legal proceedings to cancel the lease on the ground that it was ultra vires and void. The request was denied. Thereafter the minority stockholders commenced an action in the superior court of the state of Washington for Pierce county, suing as stockholders and in behalf of their corporation, to set aside the lease. In that action it was finally determined by the Supreme Court of Washington that the lease was ultra vires of the old corporation and void, on the ground that, at the meeting at which the resolution was adopted authorizing the lease, the majority of the stock of the old company was held and voted by the new company, the statutes of the state giving to no corporation created under its laws the power to hold stock in another corporation; also on the ground that the articles of the old company contained no expressions of the power of that company to execute a lease of its property. The judgment of the court enjoined the old company from recognizing any vote case by the new company, or by any one in its behalf. This decision was rendered July 12, 1901. The new company at that time held 5,669 shares of the stock of the old company, out of a total of 6,776 shares. On July 20th the certificates of the shares held by the new company were by the trustees of the old company canceled, and new certificates were issued to F. W Bradley, William Alvord, Henry Bratnober, and W. R. Rust, who were all stockholders of the new company. On December 21 1911, these persons assigned all of said shares to Chester Thorne. Thorne took the same with full notice of the judgment in the said action. After the decision W. R. Rust, then vice president of the new company, and at the same time secretary of the old company, bought 255 shares of the stock of the old company, and on January 20, 1902, he transferred 20 shares thereof to 20 persons, giving 1 share to each and 235 shares to W. G. Hellar. On March 7, 1902, Hellar transferred 8 of the shares held by him to 8 persons. This distribution of shares was avowedly made for the purpose of securing a two-thirds majority in number of holders of shares in the old company, as well as two-thirds of the stock. The purpose was to effect a dissolution of the old company, and a sale of its property. It was at this point in the course of events that the minority stockholders, being the same persons who are the appellants in the case which is now before us, commenced a suit in the superior court of the state of Washington for Pierce county (Case No. 19,209) against the two corporations and the trustees of the old company, Browne, Oakes, Rust Clark, Daily, Craig, and Heilig, alleging in their complaint, in brief, that, notwithstanding the decision of the Supreme Court of the state of Washington above alluded to, the new company still retained the possession of the leased property; that the trustees of the old company were merely its tools, and that as long as they remained in office no action would be taken to recover the property from the new company; that the stock held by Thorne still belonged to the new company; and that the transfer to him was a sham-- and praying for relief as follows: That the trustees of the old company, Browne, Rust, Clark, Oakes, Daily, Craig, and Heilig, be restrained from acting as officers or trustees of that corporation, and that they be removed from office; that the new company and the aforesaid trustees of the old company be enjoined from tearing down or removing from the smelting plant or buildings of the old company any machinery then in the buildings, and from interfering with any of the old company's property; that a receiver be appointed to take charge of and manage the said property; that Thorne be enjoined from transferring his stock, and that the stock so held by him be declared void; that the old company and its officers be restrained from allowing him to vote the same; that an accounting be had with the new company, and said trustees so named, of all their doings with said property, and that they be required to restore all of the same to the old company; and that the new company account for its profits made while in possession thereof. In that suit a temporary restraining order was issued, and thereafter, on motions to extend the order pending the suit and to appoint a receiver, the court, on March 6, 1902, denied both motions and dismissed the suit for want of equity in the bill of complaint. The plaintiffs promptly filed their motion to vacate the judgment, on the ground of irregularity in entering the same. The motion was taken under advisement, and was not decided until after the entry of the final decree in the court below in the present suit.

In the meantime, on March 7, 1902, a meeting of the stockholders of the old company was held, at which it was ordered by the holders of more than two-thirds of the stock that the corporation be dissolved, and its property sold and assets distributed. On March 19, 1902, the new company commenced an action in the superior court of Pierce county, state of Washington, against the old company, to recover judgment for $141,640.28, upon an alleged account stated on the adjustment of all matters in dispute between the two companies. Subsequently one of the minority stockholders, by leave of the court, intervened in that action, contesting the validity of the claim, and the right of the plaintiff therein to recover upon said alleged account stated. That action was still pending at the date of the entry of the decree which is appealed from in the present case. On April 25, 1903, on the motion of the plaintiff in that action, that cause was dismissed. On March 26, 1902, the stockholders who had been the plaintiffs in the action in the superior court for the District of Washington against the old company and its then directors, Browne, Oakes, Mottet, Albertson, Hellar, Thorne, and Fogg. The new company was not made a party to the suit. The bill contained many of the allegations that had been embodied in the bill of complaint in case No. 19,209 in the superior court, and it alleged that the trustees named were unfit persons to carry on the proceedings of winding up the corporation; that they were the creatures of the new company, pledged to secure it the smelting plant, and allow its claim for improvements made thereon, to which, the bill alleged, it was not entitled. It was alleged that the new company had been in the possession of the smelting plant and property of the old company under said void lease a little more than three years, and had realized large profits therefrom; that the old company had allowed a claim in the sum of $141,640.28 in favor of the new company; that the allowance of that claim and the proceedings looking to a sale of properties were part of a scheme to avoid the effect of the judgment of the superior court in which it had been declared that the lease was void, and to enable the new company to acquire the property of the old company. It prayed that the trustees named be restrained from acting as such officers of the old company or on behalf of its creditors and stockholders and from selling or charging with a lien any of its property, and from carrying out the sale proposed to be made; that a receiver be appointed of its property; and that a liquidation of the affairs of the corporation be had through him. On September 3, 1902, the appellants filed a supplemental bill, alleging that on August 7, 1902, the board of trustees of the old company held a meeting at which they considered two bids which they had received for the smelting plant and property-- one a cash bid for $250,000, the other a bid of $250,000 made by the new company; that they had accepted the latter, and had directed that a contract of sale be executed in accordance therewith; that in the contract of sale so executed it was recited that the new company had a valid claim against the old company for $141,640.28; that the new company agreed to procure assignments from the holders of not less than 5,931 shares of the stock of the old company of all dividends that may at any time be declared thereon; and that the new company was to make payment for the said purchase by receipting its bill for $141,640.28, by receipting for dividends on said 5,931 shares of stock, and by paying the sum of $31,799.72 in cash, provided that, if it should be found that it had paid too much in cash, the balance should be refunded; and, if it had paid too little, it should pay whatever further sums should from time to time be deemed necessary by the old company.

The appellees answered, and, among other defenses, pleaded that the decree of the superior court of the state of Washington in case No. 19,209 was a judicial determination of all matters and issues stated in appellants' bill. At the commencement of the suit the appellants moved for the appointment of a receiver, and for a...