Hurley v. Boston R. Holding Co.

• Decision Date: 01 March 1944
• Citation: 54 N.E.2d 183,315 Mass. 591
• Parties: HELEN J. HURLEY v. BOSTON RAILROAD HOLDING COMPANY.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

315 Mass. 591

54 N.E.2d 183

HELEN J. HURLEY v. BOSTON RAILROAD HOLDING COMPANY.

Supreme Judicial Court of Massachusetts, Suffolk.

March 1, 1944

December 3, 1941 January 4, 1944.

Present: FIELD, C.

J., DONAHUE LUMMUS, QUA, DOLAN, & RONAN, JJ.

Boston Railroad Holding Company. Corporation, Stockholder, Creditor Preferred stock, Dissolution, Receivership, Redemption of stock. Equity Jurisdiction, Lien, Dissolution of corporation Receivership, Corporate stock. Debt. Lien. Receiver. Words, "Preferred stock," "Dividends." Statute 1910, c. 639, authorizing the issue by the Boston Railroad Holding

Company of preferred stock and defining the rights of the holders thereof, did not constitute public holders of such preferred stock creditors of the Holding Company with respect either to accrued dividends thereon or to the par value thereof which Section 1 of the statute provided they should "be entitled" to "in case of a default in the payment of any stipulated dividend on said preferred stock": their rights were those of stockholders, preferential and not absolute, in substance a right to have their stock redeemed in certain circumstances. General equity jurisdiction does not permit maintenance of a suit in the

Superior Court by a minority holder of preferred stock of the Boston Railroad Holding Company to enforce the statutory charge and lien granted by Sections 2, 3, and 4 of St. 1910, c. 639, upon stock of the

Boston and Maine Railroad held by the Holding Company; the exclusive remedy therefor is by suit in the Supreme Judicial Court under Section

4.

In the absence of statutory authority and of facts justifying a receivership, a suit in equity could not be maintained by a minority holder of preferred stock of the Boston Railroad Holding Company for the dissolution of the corporation and the enforcement of the preferential rights of the plaintiff "over all other stock of the corporation" upon its dissolution or liquidation of its affairs.

A receivership of a corporation at the instance of a minority stockholder is not permitted under general equity jurisdiction in the absence of facts which would permit a receivership at the instance of a creditor. The right of holders of preferred stock of the Boston Railroad Holding

Company under St. 1910, c. 639, in substance to have their stock redeemed in certain circumstances, cannot be enforced without proof that such redemption would not render the corporation insolvent.

A suit, in substance to enforce the right of a minority holder of preferred stock of the Boston Railroad Holding Company for redemption in certain circumstances, properly was dismissed where it appeared that the only property of the defendant which could be used for such redemption was stock of the Boston and Maine Railroad which, under St. 1909, c.

519, Section 3, could not be sold in the absence of express legislative authority and also was subject to the statutory charge and lien under

St. 1910, c.

639, Sections 2, 3, 4, for the benefit of all the holders of the preferred stock.

A suit by a preferred stockholder of the Boston Railroad Holding Company against the company could not be maintained under G. L. (Ter. Ed.) c.

214, Section 3 (8), to reach and apply stock of the Boston and Maine Railroad held by the defendant where it did not appear that the plaintiff had any enforceable right against the defendant.

BILL IN EQUITY, filed in the Superior Court on March 25, 1941, and afterwards amended.

A demurrer to the bill as amended was heard by Swift, J., and was sustained.

The case was argued at the bar in December, 1941, before Field, C.J., Donahue, Dolan, & Cox, JJ., and after the retirement of Cox, J., was submitted on briefs to Lummus, Qua, & Ronan, JJ.

J. G. Crane, for the plaintiff. J. Garfield, for the defendant.

J. B. Ely, by leave of court, submitted a brief as amicus curiae.

FIELD, C.J. This is a suit in equity brought in the Superior Court against Boston Railroad Holding Company, a corporation organized, under the laws of the Commonwealth hereinafter referred to as the defendant. The plaintiff alleges in her bill, as amended that she is the owner of "twenty-five shares of the Public Preferred" stock of the defendant and that the defendant "has defaulted in the payment thereon of dividends since January 10, 1938, and by reason of such default in the payment of dividends" the defendant owes the plaintiff "the amount of the par value of her share[s], to wit: -- Twenty-Five Hundred ($2500.00) Dollars, plus accumulated dividends thereon, down to the date of any decree herein." The plaintiff alleges that she "brings this suit as an owner of Public Preferred shares of the . . . [defendant], for herself and for such other owners of the Public Preferred shares of the . . . [defendant] as may join this suit as parties plaintiff." No other person, however, has so joined. Other allegations of the bill, as amended, will be referred to later. The prayers of the bill, as amended, in addition to a prayer for general relief, are: (a) that the court decree that the defendant owes to the plaintiff the sum of $2,500, the par value of the so called public preferred stock of the defendant owned by the plaintiff, "plus the sum of the accumulated and unpaid dividends thereon," (b) that the court reach and apply to the payment of these sums due to the plaintiff from the defendant so much of the shares of stock of any class of the Boston and Maine Railroad owned by the defendant as may be necessary to discharge the obligation of the defendant to the plaintiff, (c) that the court adjudge that the plaintiff or plaintiffs as holders of the public preferred stock of the defendant have as security for payment of the full amount of the par value of their preferred stock and accumulated dividends thereon all stock of the Boston and Maine Railroad "owned by the . . . [defendant]," and (d) that a receiver or receivers be appointed to administer the affairs of the defendant subject to the orders of the court.

The defendant demurred to the bill, as amended, on the ground that the facts contained therein "are insufficient in law and in equity to enable the . . . [plaintiff] to maintain her suit." An interlocutory decree was entered sustaining the demurrer and later a final decree was entered dismissing the bill with costs. From each of these decrees the plaintiff appealed to this court.

The bill, as amended, contains the following allegations -- some of which obviously are allegations of law. The authorized and outstanding capital stock of the defendant consists of thirty-one thousand sixty-five shares of common stock, having a par value of $100 per share, and two hundred seventy-two thousand nine hundred thirty-nine shares of preferred stock, having a par value of $100 per share. The voting power of the defendant is vested solely in its common stock. The stipulated dividend on the preferred stock of the defendant is four per cent per annum, payable semiannually, the established dividend dates being January 10 and July 10 of each year, and the "owners of such preferred stock are entitled to be paid such stipulated dividend, but, in the event of the default in the payment of any stipulated dividend from whatever cause, . . . [the defendant] is liable to the owners of its preferred stock to the amount of the par value of their preferred stock and accumulated and unpaid dividends thereon." All the common stock of the defendant is owned by the trustees in bankruptcy of the New York, New Haven and Hartford Railroad Company, hereinafter referred to as the "New Haven." Two hundred forty-seven thousand seven hundred fifty-nine shares of the preferred stock of the defendant are owned by the New Haven. Twenty-four thousand one hundred fifty shares of the preferred stock of the defendant are distributed among and owned by various members of the public. The stock distributed among and owned by various members of the public will be referred to hereinafter as "Public Preferred." "By virtue of a decree of the District Court of the United States of America, for the Southern District of New York, under the date of October 17, 1914, as modified on June 4, 1923, in the case of the United States of America vs. New York, New Haven & Hartford Railroad, et als, the Public Preferred is entitled to priority in liquidation over all other Preferred Stock of the . . . [defendant] and a legend to that effect was required to be and was stamped upon the Certificate of . . . [the plaintiff] and all Certificates representing the Public Preferred of the . . . [defendant]." "The payment of the semiannual dividends on the Public Preferred of . . . [the defendant] and, in the event of default by . . . [the defendant] in the payment of said semiannual dividends, the payment of the entire amount of the par value of the Public Preferred and accumulated dividends thereon is required by law to be, and is, guaranteed by the New Haven." Although "formally requested to do so, the New Haven has refused since January 10, 1938, to honor its guarantee of the dividends on the preferred stock of the . . . [defendant]." The assets of the defendant consist entirely of shares of stock of various classes in the Boston and Maine Railroad. The "market value of such assets is entirely inadequate to meet the sums due to the owners of the

Public Preferred for the par value of their preferred stock and accumulated dividends thereon and . . . the . . . [defendant] is therefore grossly insolvent." The defendant "does not now owe any debts which were in existence at the date of the stockholders meeting at which said preferred stock was first authorized." Under "the provisions of law pertaining thereto, in the event of the default by the [defendant] from whatever...