Henry v. Ide

• Decision Date: 22 June 1922
• Docket Number: 7 Div. 321.
• Citation: 208 Ala. 33,93 So. 860
• Parties: HENRY ET AL. v. IDE ET AL.
• Court: Alabama Supreme Court

93 So. 860

208 Ala. 33

HENRY ET AL. v. IDE ET AL.

7 Div. 321.

Supreme Court of Alabama

June 22, 1922

Appeal from Circuit Court, Calhoun County; A. P. Agee, Judge.

Bill by Henry C. Ide and others against C. B. Henry, W. I. Greenleaf and the Profile Cotton Mills, for injunction and appointment of receiver. From a decree overruling demurrers, defendants appeal. Affirmed.

Bill by minority stockholders to rescue it from fraudulent mismanagement of majority stockholders for their own benefit need not aver demand on directors for redress, they being shown to be the mismanaging stockholders.

The bill is filed by E. T. Ide, Henry C. Ide, George P. Ide Walter Dean, Frank J. Burke, James F. Crow, W. L. Quimby Nellie O. Santer, Charlotte E. Quimby, Catherine I. Gray William A. Ide, Milo J. Warden, George A. Warden, and the Merchants' National Bank of St. Johnsbury, Vt.

It is alleged that C. B. Henry and W. I. Greenleaf, respondents reside in the state of New Hampshire, and that the Profile Cotton Mills, respondent, is an Alabama corporation with its principal place of business at Jacksonville, Ala. It is alleged that the complainants and the respondents named, together with certain other persons and corporations set out in paragraph 2a of the bill and made respondents, constitute all of the outstanding stockholders of the Profile Cotton Mills.

The bill avers that the Ide Cotton Mills, an Alabama corporation in which complainants, or those from whom they purchased, and respondent C. B. Henry were stockholders, in 1905 and 1908 erected mills No. 1 and No. 2 at Jacksonville, Ala.; that the cost value of the properties of said Ide Cotton Mills was not less than $1,000,000, and worth, at the time of the filing of the bill, not less than $3,000,000.

Paragraph 5 of the bill avers that on July 1, 1908, said Ide Cotton Mills issued and sold 6 per cent. bonds to the amount of $300,000. It is further averred that a large number of stockholders in the Ide Cotton Mills were residents of Calhoun county; that the board of directors consisted of 9 in number, and that the minority stockholders were represented on said board up to the month of April, 1911; that at said time respondent C. B. Henry sent the respondent W. I. Greenleaf to Jacksonville, Ala., for the purpose, alleged on information and belief, of acquiring complete ownership of the capital stock and properties of the Ide Cotton Mills; that said Henry at said time had acquired a controlling interest in the stock of said corporation; that in the year 1911 or shortly thereafter respondents Henry and Greenleaf conspired together to secure the entire control of said corporation by securing their election as officers and directors, and, after becoming such officers and directors, to operate and conduct said corporation for their own unlawful profit and to the injury of the minority stockholders, including complainants.

It is further averred that pursuant to such conspiracy said Henry and Greenleaf in April, 1911, by the use of the majority of the stock which they then owned and controlled, reduced the number of directors of the corporation from 9 to 3, and elected as directors C. B. Henry, W. I. Greenleaf, and George E. Henry; that in further pursuance of said conspiracy C. B. Henry was elected president and treasurer of said corporation, W. I. Greenleaf, vice president and secretary, and the bookkeeper, H. V. Weaver, assistant treasurer; that subsequently said Weaver was elected a director to succeed George E. Henry, and continues as such director; that said Weaver is subservient to, and in all respects a tool of, W. I. Greenleaf and C. B. Henry; that said directors and officers have at all times remained the same and have had complete control and management of said corporation, and of Profile Cotton Mills, to which name it was changed, and have managed and controlled said corporation without any regard to the rights of the minority stockholders.

It is further averred that in 1913 respondents Henry and Greenleaf, in furtherance of said conspiracy, reduced the capital stock of the Ide Cotton Mills; that they planned to withhold all information from the minority stockholders, to allow them no representation of any kind, to declare no dividends, although large and substantial profits had been made, to refrain from holding regular meetings of directors, to refrain from making reports of the affairs of the corporation-all for the purpose of so deceiving such stockholders as to force and compel them to sell their stock at a nominal value. It is averred that Greenleaf and Henry refused to declare dividends, and to excuse the failure made false representation to stockholders as to the condition of the property and amount of profit that the corporation was making, that respondents have frequently stated that it would be many years before any dividends would be declared, and that by such means they have been enabled to buy a large amount of the stock of the corporation for nominal sums, in some instances as low as 10 cents on the dollar, and now own or control 90 per cent. of the stock of the corporation.

It is further averred that complainants have diligently sought information as to the condition of the affairs of the corporation, and that said Henry and Greenleaf have persistently refused to give such information; that some of complainants have traveled great distances to attend meetings of the stockholders, but that it has been the policy of respondents to adjourn such meetings from time to time without any just excuse therefor; that no audits or accountings have ever been made of the books of said corporation; that complainants have demanded on several occasions the right to have an inspection of said books, and that such requests were refused; that at a meeting of the stockholders on May 20, 1920, held at Jacksonville, Ala., complainants again demanded the right to have an examination and an inspection made of the books and papers, and an audit thereof, and, after refusing this request, it was agreed between complainants and said Greenleaf that the corporation would proceed to have an audit made and furnish complainants with copy thereof, and that, if said audit was not commenced within 30 days complainants could have the right, at their expense, to have an independent audit made; that said period expired without said audit having been commenced, and, notwithstanding said agreement, said Greenleaf again refused complainants such right of inspection and examination; that some of complainants thereupon filed a petition for a writ of mandamus requiring said Greenleaf to allow complainants access to the books and papers of the corporation and an examination and audit thereof; that a decree was rendered granting the writ; that an appeal was taken to the Supreme Court of Alabama, where the decree was affirmed; that thereafter complainants demanded of said Greenleaf compliance with said order; that said Greenleaf refused, claiming that the time was unseasonable; that finally, upon being threatened with contempt proceedings, he agreed to allow an examination of said books and papers the following week.

It is further averred that during said examination and audit said Greenleaf has thrown many obstacles in the way and refused to furnish certain books and papers refused to furnish certain books and papers requested, that he has been compelled by citations of contempt proceedings to furnish books and paper which he has refused, and that there is now pending against him another contempt proceeding based on such refusal. It is averred that certain books and papers necessary have never been furnished, and that for this reason complainants have not been able to obtain full, accurate, and detailed information necessary for a proper accounting of the affairs of the corporation.

On information and belief it is alleged that for the past four years mills similar to those of the respondent corporation have made profits almost abnormally large; that respondent corporation admits that it made 215,000 pounds per month, which should with anything like efficient management, have amounted to a profit of $967,500 for 2 1/2 years.

The bill alleges profits made by numerous other cotton mills situated in the same territory with respondent corporation; and avers that respondents Greenleaf and Henry, in the operation of respondent corporation, have made the same kind of profits that such other mills have made, and have failed to properly account for same, or else have been guilty of such inefficiency and incompetency as that they should be removed from further conduct of the corporation.

It is further averred that said Henry and Greenleaf have, during the past 7 years, had the corporation borrow money from Henry, paying him therefor 8 per cent. interest, although during said time money could have been borrowed at 4 per cent. It is averred that said Greenleaf has fraudulently and without authority withdrawn from the assets of the corporation, for his individual use and benefit, more than $75,000; that said Henry and Greenleaf, in 1913 and 1914 fraudulently withdrew from the assets of such corporation $30,000 with which they purchased a farm in Calhoun county, the title to which was taken in the name of said Henry; that said Henry and Greenleaf have fraudulently set up as a charge against said corporation the sum of $195,250 under the book title of "Reserved for C. B. Henry and W. I. Greenleaf, time and expenses," which is carried upon books of the corporation as a liability; and that on September 30, 1920, said Greenleaf fraudulently withdrew from the funds of the corporation $32,000 charging the same against said reserve fund and converting the same to his own use. It is averred that on March 8, 1919, said...