Howard v. National Telephone Co.

Decision Date17 October 1910
Citation182 F. 215
PartiesHOWARD v. NATIONAL TELEPHONE CO. et al.
CourtU.S. Court of Appeals — Fourth Circuit

[Copyrighted Material Omitted]

Howard a citizen of Indiana, has filed his bill herein against the National Telephone Company, a West Virginia corporation, the Continental Telephone & Telegraph Company, a New Jersey corporation, and 14 other telephone companies, corporations existing under the laws of West Virginia, Pennsylvania, and Ohio. He alleges himself to be the owner of 31 shares of the preferred capital stock of the National Telephone Company, of the par value of $100 each, or of the total value of $3,100 that the National Telephone Company was incorporated for the purpose, among others, of acquiring, by lease, purchase, or otherwise, and maintaining and operating, telephone and telegraph lines in West Virginia, Pennsylvania, and Ohio that its authorized capital stock is $15,000,000, $5,000,000 preferred and $10,000,000 common; that it has issued $1,401,100 of preferred stock, and authorized a mortgage bond issue of $10,000,000, of which $2,625,000 have been issued, $1,031,000 of which were used in the acquisition of properties, and the remainder was pledged as collateral security for certain loans; that it has acquired and purchased the whole or a great majority of the stock of the 14 other telephone companies, other than the Continental one, named as defendants, which stock purchases were made subject to the mortgage bonds theretofore issued by these underlying companies fully set forth; that after these stock purchases the National Telephone Company elected new boards of directors and officers for these several companies and consolidated them under one management, with general offices at Wheeling, W. Va., and from then until now has maintained, operated, and controlled them and built up an extensive, economic, and profitable telephone business, the value of which is reasonably estimated at $8,500,000, charged, however, with the bonded indebtedness of $2,443,000; that in addition to this bonded indebtedness, in the conduct of its business and that of its underlying companies, the National Telephone Company has incurred various debts for moneys borrowed from banks, trust companies, and individuals fully set forth, aggregating $765,500, about to fall due, for which its bonds have been deposited as collateral security; and that interest on the outstanding bonds of the National Company has fallen due.

It is then charged that, after this National Company had so acquired its stock control of the underlying companies, had issued its bonds, and incurred the other indebtedness, and after it had issued and sold its preferred stock, its board of directors, without the knowledge, consent, authority, vote, or acquiescence of its stockholders, or of plaintiff, and in express violation of section 24 of chapter 53 of the Code of West Virginia, had issued the full amount of its common stock authorized by its charter, to wit, 100,000 shares of the par value of $10,000,000, and sold the same at less than par to the Consolidated Telephone & Telegraph Company, a West Virginia corporation, which in turn had assigned and delivered the same to the defendant the Continental Telephone & Telegraph Company, now holding and claiming the same. This issue and sale, it is charged, was not made by any vote of the stockholders, no money was received therefor; its sole consideration was services rendered which were of a value not more than one-tenth the par value of said stock.

The bill further alleges that after this stock came into the hands of the Continental Company the affairs of this latter company, after suit brought in New Jersey for the appointment of a receiver for it, were so adjusted as that a voting trust of its stock was established, to control and manage its affairs for two years, by reason whereof two of the three trustees so constituting said voting trust are demanding that the treasurer of the National Company shall resign and one of their number be appointed in his stead, and are threatening to take entire charge and control of its affairs and of its underlying companies with a view to divert the income and profits of each from their legitimate uses and appropriate the same to the uses and purposes of the Continental Company, whereby plaintiff would be deprived of all prospect of dividend from his stock, and further accomplishing the ruin and bankruptcy of the National Company and its underlying companies. It is then, in effect, charged that, by reason of the transfer of its stock by its directors to the Continental Company and the demands of the two trustees of the latter to control its affairs, the credit of the National Company is being impaired, whereby it is unable to meet its obligations, and its ruin and that of its underlying companies is threatened by reason of suits likely to be instituted in the several different states and many different localities where its operations are conducted.

The bill further charges that plaintiff has not applied, either to the board of directors of the National Telephone Corporation or to its stockholders, for the relief against the illegal issue of 100,000 shares of its common stock now in the possession of and claimed by the Continental Telephone & Telegraph Company, because its said board of directors could not deliver the same up for cancellation, if it was so inclined, and that, as he is informed, it has no such inclination, and would refuse to take any step to bring about the cancellation of said stock, because the board that issued said stock is the present board of the company, and that it would be idle to apply to a stockholders' meeting of said company for the reason that the 100,000 shares themselves constitute a great majority of the voting power of the National Telephone Company, and the holder thereof, the Continental Telephone & Telegraph Company, could not be expected to vote said shares for their own destruction.

The further charges are made that the National and underlying companies are quasi public corporations, whereby they should, in the interest of the public, be kept as going concerns; that their gross annual income will amount to near $900,000, and their net income to near $200,000; and that the possession of this $10,000,000 of stock so illegally issued and now held by the Continental Company constitutes a cloud upon the title of the National Corporation to the personal property and stock of its underlying companies situate within the Northern district of West Virginia.

The prayer of the bill is that said issue of $10,000,000 of stock be delivered up by the Continental Company and be canceled; that receivers for the National and underlying companies be appointed to conduct the affairs thereof for a reasonable time, and for an injunction against the Continental Company restraining it, its officers and agents, from calling a meeting of stockholders of the National Company and from voting in any stockholders' meeting called the 100,000 shares of stock in controversy.

To this bill the Continental Company has interposed a demurrer, alleging 11 grounds therefor: First, because compliance with Equity Rule 94 is not shown. Second, the bill shows no interest in plaintiff entitling him to the relief prayed for. Third, lack of proper parties. Fourth, the bill is uncertain in stating the defendant's title to the $10,000,000 worth of stock and the manner and circumstances of its acquirement. Fifth, that on its face the bill shows the relief as to the stock cannot be granted, but that title to it is indefeasible in defendant the Continental Company. Sixth, the bill on its face shows plaintiff to have no legal capacity to bring the suit. Seventh, complete and adequate remedy at law. Eighth, lack of jurisdiction in this court in consequence of a want of necessary averments as to citizenship of parties. Ninth, because the bill does not show the action to be one arising under the Constitution or laws of the United States. Tenth, lack of diverse citizenship; the interest of the National Company, one of the defendants, being the same as that of the plaintiff. Eleventh, bill multifarious.

T. S. Riley and John H. Holt, for plaintiff.

John J. Coniff, for demurrant Continental Telephone & Telegraph Co.

DAYTON, District Judge (after stating the facts as above).

A number of these grounds of demurrer can be quickly disposed of. The second, to the effect that plaintiff shows no interest entitling him to relief, must be overruled inasmuch as the bill alleges him to be the owner of 31 shares of preferred stock of the National Corporation, worth at par $3,100, which, with the other stock of the company, is threatened with destruction in value by reason of the Continental Company having gained illegal control of the National's property and affairs. Allegations to this effect, taken for true, as they must be on demurrer, would seem to me to show clear interest. The third, that necessary parties are not made to the bill, must be overruled because the bill does not disclose such lack of necessary parties. The fourth, to the effect that the bill does not definitely state the Continental Company's title to the $10,000,000 of stock and the manner of its acquisition, must be overruled because, in my judgment, the allegations of the bill are full and complete as to these matters. The sixth, that the said plaintiff has not the legal capacity to bring this suit, is manifestly based upon the two contentions set forth in the first and second grounds, as nothing in the bill discloses any personal legal disability, such as infancy or lunacy, so far as the plaintiff is concerned. The second ground of demurrer I have above disposed of; the first will be considered later on. The seventh...

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    • United States
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    • December 16, 1953
    ...248 U.S. 564, 39 S.Ct. 8, 63 L.Ed. 423; Crawford v. Seattle, R. & S. Ry. Co., D.C.W.D.Wash.1912, 198 F. 920; Howard v. National Telephone Co., C.C.N.D.W.V.1910, 182 F. 215, 220. In arriving at the conclusions here reached, these opinions and others previously cited have prompted great pause......
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    ...the opinion it also appears that the complainants received with their purchase of preferred stock a bonus of common. In Howard v. National Telephone Co., C.C., 182 F. 215, the stock was issued in violation of a A suit to recover promoters' secret profits rests on a different basis from the ......
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